A time of transformative change – opportunity and challenge for credit unions – Remarks by Domhnall Cullinan at ILCU Annual Conference

I am delighted to join you today for your Conference and want to thank David Malone, your CEO, and your President Martin Busch for the invitation to address you.

As it is my first time attending one of your events, I should introduce myself.  I have been with the Central Bank of Ireland since 2003 and in January 2025, I was appointed Director of Banking & Payments at the Central Bank of Ireland. My remit incorporates the supervision of domestic and international banks in Ireland, payment firms and credit unions. I am the Central Bank’s alternate member of the ECB Supervisory Board, which supervises Europe’s banks as part of the Single Supervisory Mechanism. I am also a member of the Central Bank’s Senior Leadership Team.

In my comments today I will address:

• The risk environment and supervisory priorities
• The Central Bank’s supervisory approach
• Two topics of focus – lending and operational resilience
  

From a personal perspective, I should start by saying that I am respectful of the credit union movement, its cooperative ethos and the commitment of the volunteers and staff who deliver for members across the island. I understand the tangible role the movement plays in households, communities and the financial sector. I take my responsibilities in respect of the sector very seriously

When I look back at the comments made by my peers over the years, and indeed by the Registrar and other members of the Central Bank leadership, they almost all note the pace and extent of change¹, both within the financial services sector and in the wider economy. While the change factors continue to evolve, and are currently accelerating², I carry on that tradition of speaking to you of a dynamic environment. While it’s almost a cliché for a Central Bank official to address you and say that these are interesting times, and that it’s a crucial point for you as a sector, it is incontrovertible at this time of radical uncertainty.

The credit union movement's member-centric ethos and the trust you enjoy can serve you well in addressing current and future challenges. Strength of governance, clear risk appetite and realistic business strategies, alongside that trust, are some of the enablers necessary to meet evolving member expectations. Clarity of strategy for the credit union sector is important and indeed referenced in the recent Programme for Government. You will need to be ambitious yet concentrate on what is deliverable, realistic, within your risk appetite and appropriate for your membership. A focus on what is needed and practically possible, rather than what can be conceptualised, will serve you well. I am reminded of the quote attributed to Francis of Assisi “Start by doing what is necessary; then do what is possible; and suddenly you are doing the impossible” – this aligns well with the inherent pragmatism of your event theme, with its emphasis on delivering what is possible, and doing it well, in line with your member-centred ethos.

Credit unions are part of the financial system – and it is in that context which the Central Bank’s regulates and supervises the sector; however I am conscious too of the social impact of your organisations. The role in communities and the impact on people’s lives is not lost on me. In that context, the management of risk, sustainable business models which deliver for your members over the long term, and a relentless pursuit of better governance take on particular relevance. I believe the Registry of Credit Unions has been clear regarding its vision for the sector of “Strong Credit Unions in Safe Hands”. That vision underpins the Central Bank’s statutory responsibility to oversee the protection by each credit union of the funds of its members and the maintenance of the financial stability and well-being of credit unions generally.  The team  in the Registry of Credit Unions, led by the Registrar Elaine Byrne, have a high level of engagement with you through a range of communications channels,  directly and indirectly, and I will reference a number of important recent publications in my comments.

Let me turn to the risk environment.

The risk environment and supervisory priorities

The Central Bank’s wider communications to the financial sector, through the Financial Stability Review³ and Q1 2025 Quarterly Bulletin⁴ note that risks are to the downside amid heightened economic and geopolitical uncertainty.

The Central Bank recently released its second Regulatory and Supervisory Outlook Report⁵ which sets out the Central Bank’s perspective on key trends and risks that are shaping the financial sector and consequent regulatory and supervisory priorities for the next two years. I wanted to share with you the Central Bank’s supervisory priorities, and emphasise where these are relevant to the credit union sector.

Priority 1: Proactive risk management and consumer-centric leadership of firms. The leadership of regulated entities adopt a proactive and forward-looking approach to managing the risks and uncertainties facing their organisations and their customers.

Priority 2: Firms are resilient to the challenging macro environment. Firms have sufficient operational and financial resources, adaptability and recoverability, to be resilient and well-prepared in the face of risks in the highly uncertain and challenging macro environment.

Priority 3: Firms address operating framework deficiencies. Deficiencies identified in the governance, risk management and control frameworks of regulated entities are addressed to ensure they are effective, both in the current environment and into the future.

Priority 4: Firms manage change effectively. Regulated entities keep pace with changes in the financial system and in consumer needs and expectations through the well-managed evolution of their business strategies.

Priority 5: Climate change and net zero transition are addressed. Regulated entities continue to improve their responsiveness to climate change, the implications for their businesses and customers, and they must manage its impact and enhance their role in the transition to a net zero economy

For credit unions, the Central Bank emphasises in the report:

• Strong reserves maintained, positive growth trends in lending, and high trust, yet despite this, strategic challenges remain due to structural issues. The lending and savings imbalance, counterparty concentration  in investments, and the need for pro-active asset and liability management – all of which  present a challenging agenda for your management teams and your boards.
• Increasing risks to operational resilience, which I will come back to later, including
  • A growing reliance on third parties for outsourcing, bringing increased operational risk.
  • Expanded digital offerings and increased uptake by members, who expect uninterrupted service, requiring significant preparedness from you.
• On collaboration between credit unions , while there are some signs of progress, for example in the payments area, this has yet to focus on strategic transformation for the sector.

This is no doubt a challenging agenda.

The Central Bank also publishes today the 11^th edition of the Financial Conditions of Credit Unions. In it the Central Bank notes the continued positive trends in reported credit union sector data while emphasising  the need for credit unions  to be pro-active in managing income and expenditure and on  asset /liability management to ensure resilience to withstand liquidity stresses. Maintaining and building adequate levels of resilience, including adequate operational resilience, remains key to ensuring credit union financial stability and resilience. Proposed changes to the Lending Framework, which I will mention later, will enable credit unions that wish to do so to undertake increased lending activity - this  should be done prudently and aligned with the skills and expertise required.

Central Bank’s supervisory approach

In the Central Bank we continue to improve and transform our approach to regulation and supervision to ensure we fulfil our mission in a rapidly changing financial ecosystem. Our new supervisory framework, effective since January 2025, remains risk-based and outcomes focused, but is evolving to deliver a more integrated approach to supervision, drawing on all elements of our mandate (consumer and investor protection, safety and soundness, financial stability and integrity of the system). This will position us better as an organisation to meet our objectives to ensure consumers of financial services are protected in all respects in a changing and increasingly complex and interconnected financial landscape.  While the focus of our work is resilience, adaptability and trustworthiness in the provision of financial services, responsibility for risk identification, management and risk mitigation rests first and foremost with the board and management teams of the firms we regulate.

Credit unions are one of the sectors regulated and supervised by the Central Bank – with each sector supervised in an integrated, holistic way with a multi-year supervisory strategy – refreshed annually to ensure emerging risks are considered. The Registry of Credit Unions remains responsible for regulation and supervision of credit unions in accordance with the statutory mandate set out in the Credit Union Act, 1997 and the main contact with /for credit unions.

From a structural point of view, this regulation and supervision takes place in a directorate of diverse financial firms, which I Iead, and in which firms are subject to differing, proportionate, regulatory frameworks. My predecessor noted in her first comments to the sector in 2019⁶ that the Central Bank’s engagement would be “robust, constructive, and transparent.” That continues to be our commitment. Our risk-based approach will continue to focus on the most material risks, using data, judgement, insight, and challenge⁷.           

Moving on to the two specific topics of focus - the first topic I would like to mention is lending.

Lending - CP 159

It may be an obvious observation to make, but the primary role of a credit union is to accept savings from members in order to lend to its members in a prudent manner. With a sectoral loan to asset ratio of 33%, it is clear that credit unions have further distance to travel to address the imbalance between loan issuance and savings intake. The Central Bank is committed to regulation remaining clear and proportionate, enabling prudent and sustainable lending, as demonstrated by the current review of the lending framework for credit unions. This review led to the publication in December 2024 of a Report on Credit Union Lending and Consultation Paper 159 (CP 159) which proposed a number of targeted material changes to the lending regulations for credit unions, including changes to the concentration limits for house and business lending, and changes to certain conditions attached to underwriting and loan performance reporting. 

This consultation closed on 11^th  February and the  feedback received is being considered, following which we will finalise the proposals for change to the lending regulations. Statutory consultation will then be undertaken, after which the Central Bank will publish the Feedback Statement to CP159, with a view to the amending regulations commencing in Q3.

The Central Bank’s expectation is that the proposed changes to the lending regulations, when implemented, will enable those credit unions that wish to, to undertake increased house and business lending activity in order to diversify loan books, improve loan to asset ratios and better deliver for their members. The Central Bank has been clear in its view that enabling regulations are not enough to deliver business model change – credit unions must take the opportunities that the legislative and regulatory framework enable you to seize. Echoing comments previously made by former Deputy Governor Sharon Donnery, I’d reiterate that credit unions now need to focus on prudently growing your loan books, rather than trying to change the rule book⁸. The Central Bank expects that credit unions will continue to lend prudently in line with risk appetite as they further build skills, capacity and expertise in the newer areas of house and business lending including adopting a proactive risk management approach.

The second topic I would like to mention is operational resilience.

Operational Resilience

The Central Bank recognises that long term resilience also relies on sustainable business models, for those business models to be sustainable they must not only adapt to the changing environment, but credit unions’ capabilities and controls must also adapt - to ensure that credit unions can safely and sustainably serve their members into the future. The sector continues to develop its range and delivery channels for its financial service offerings; this brings a continued onus for credit unions to improve and mature their governance and risk management frameworks. Improved resilience is not just about metrics and ratios or regulations and rules - it requires awareness, alertness and agility to respond.

The most important lines of defence are good governance and risk management – with directors and management of credit unions, together with the supporting functions of risk management, compliance and internal audit, playing a crucial role.

On ICT risk and operational resilience - as credit unions expand their digital offerings, and become increasingly reliant on outsourcing, it is crucial to ensure focus on strengthening operational resilience and disruption/crisis preparedness. Fundamentally, this is about ensuring credit unions are safe and sound in a digital age – protecting credit unions and their members.

More broadly, given continuing trends in reported IT and cybersecurity incidents by organisations, credit unions need to be continuously vigilant regarding potential vulnerabilities in their IT systems. Taking into consideration the potential adverse impacts arising from IT and cybersecurity incidents – for example not just financial or customer impacts, but legal and reputational ones too. Identification and mitigation of risks in these areas should be a priority for all credit unions on an on-going basis. The regulatory environment for the broader financial system has been strengthened by the introduction of the DORA framework in January last, with credit unions having additional time to prepare in advance of the 2028 timeline for its application to the sector.

IT Risk, as a key component of operational risk and resilience for credit unions, is a key supervisory focus for the Central Bank. This focus is reflected by the thematic review of IT Risk in credit unions underway, with a report to be published later in 2025.

Conclusion

I have covered a range of items there, and I will conclude now by wishing you well with the remainder of your event.

I will mention one other recent report by the Central Bank of Ireland as my closing remark, on the demographics of those in leadership roles in financial services⁹. It reflects well on the credit union movement, with the sector having the highest number of PCF applicants by females (44%) in 2024, noting that gender diversity is just one aspect of diversity in organisations . Diversity in governance is well-established as a significant benefit to organisations of all types. While the factors measured in that report are limited, I would encourage you to not be complacent about this aspect of good governance. Your boards and staff teams will benefit from diverse perspectives, ensuring challenge, and minimising the risk of groupthink to produce better risk management, better strategy and better social impact.

Given the uncertainty faced, this has never been more important.

[1] Including a comprehensive consideration in “The changing landscape for financial services” Remarks by Gabriel Makhlouf, Governor of the Central Bank of Ireland At the Irish League Credit Unions Conference November 2023

[2] “Shocks and shifts – regulation and supervision in a changing world” Remarks by Deputy Governor Mary-Elizabeth McMunn at the IOB. 3 April 2025

[3] Central Bank of Ireland. Financial Stability Review 2024 II (PDF 1.81MB)

[4] Central Bank of Ireland Quarterly Bulletin 1 of 2025

[5] Regulatory and Supervisory Outlook 2025 (PDF 2.15MB) February 2025

[6] Address by Mary-Elizabeth McMunn, Director of Credit Institutions to the CUMA Autumn Conference September 2019

[7] “Shocks and shifts – regulation and supervision in a changing world” Remarks by Deputy Governor Mary-Elizabeth McMunn at the IOB. 3 April 2025

[8] Evolving with the times, credit unions in a changing landscape - Remarks by Deputy Governor Sharon Donnery

[9] Central Bank of Ireland Demographics Analysis 2024 (PDF 1.4MB) March 2025