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2017 ACE Annual Conference and AGM
More than 50 delegates from 16 ACE credit unions attended the two day annual Conference at the Copthorne Hotel in Birmingham on the 12th - 13th May. There were also delegates from two non-affiliated credit unions that were considering becoming ACE members. Delegates were treated to series of presentations which included research into responsible lending, innovative lending products, the threats of financial crime, new data protection legislation, the unique selling points of credit unions and a devolved government approach to engaging with credit unions. There were also three interactive workshops covering warning signs of failing credit unions; dangers of out- sourcing bad debt recovery to non-regulated firms; and the threat of "cybercrime". Delegates also heard some useful updates from the FCA, the PRA and the FSCS. Evaluation responses showed that 90% of all of the presentations delivered were rated as either "good" or "very good". Accommodation and food at the Copthorne was generally rated as "good" although there were some negative comments about the lack of air conditioning and shortage of hotel parking.
The AGM delegates decided that 2018 ACE Conference & AGM will be held in the city of York at a venue to be decided by the ACE Board. A summary of all presentations can be found on pages 4 to 8 and the full presentation slides are are available as PDF files on the ACE website.
The afternoon session was started by Dr. Lindsey Appleyard (Research Fellow, Centre for Business in Society, Coventry University), Professor Karen Rowlingson (Professor of Social Policy, Department of Social Policy and Social Work, University of Birmingham) and Professor Tom Sorrell (Professor of Politics and Philosophym University of Warwick).
Karen highlighted the findings of the 3 year research programme on responsible lending that had been undertaken with borrowers of high street banks, credit unions, doorstop lenders and payday lenders. Following an interactive session on how we make our decisions on who we lend to credit unions ranked highly in achieving the key characteristics of being a responsible lender which were listed as: product; transparency; affordability; flexibility; savings and support. The research is continuing and Karen encouraged ACE credit unions to become involved in future programmes.
The second presentation was made by Kathryn Burgess-Gould, Vice-President of the Anti-Money Laundering Financial Crime Team at Barclays. Kathryn took delegates through the reasons why credit unions should be undertaking a financial crime risk assessment which included being able to identify the risks that might prevent credit unions from reaching their business objectives and the threats that might bring them about. We need to be able to identify the preventative controls that already exist to mitigate each risk and determine the effectiveness of such controls. Kathryn advised that the key controls that credit unions should have in place were: customer due diligence to identify potential threats and form a view on the threat the customer poses; transaction screening to identify suspicious transactions; segregation of duties to ensure that the potential threats are covered by individuals; the keeping of accurate and valid records and up to date policies and procedures. Kathryn emphasised the importance of keeping accurate records of decisions made by risk and control boards within the credit union to back up all actions undertaken.
Gareth Evans, Director at the Financial Inclusion Centre spoke about some innovative lending solutions designed to counter most credit unions inability to get sufficient funds productively out on loan to their members. Gareth told delegates that his research covering over 200 credit union directors identified the failure to get sufficient funds out on loan was the greatest threat to their survival. The challenges faced by credit unions included: a failure to recruit young members has left may credit unions with an ageing membership profile that were more interested in building savings. In addition to this restrictive loan criteria and inflexible loan products were not attractive and forcing people to go to higher cost but easier to access loan products from payday lenders. To counter this trend London Mutual Credit Union decided to introduce an automated lending product that better suited many existing and potential members. The new loan product was established to be accessible 24/7 and to be as quick and simple as possible making small loans £100-£400 to members who were employed and earning at least £12k per annum at an APR of 42.6%. Over a 5 year period the new loan product has been highly successful with more than 25,000 short term loans being made to around 5,000 new and existing members for a value of more than £7m. Over the 5 year period total loan delinquency has been very low with a bad debt level of just 1.85%. London Mutual Credit Union are providing this product in partnership with Leeds Credit Union and Pollock Credit Union and would welcome new credit unions joining the partnership.
The first day of the Conferences was completed with a political overview of how credit unions and devolved Government can work closely together to the benefit of local communities. Professor Mark Drakeford AM said that credit unions in Wales are recognised by the Welsh Government as key players in offering access to secure savings and affordable loans to Welsh citizens. Credit unions are also playing a vital role in the delivery of the Welsh Financial Inclusion Strategy, whilst at the same time recognising that to be self-sustaining they needed to attract more people across the working population of Wales to become members. To help achieve this outcome the Welsh Government are currently funding a number of credit unions in Wales to increase the number of both private and public sector employers that offer payroll deduction opportunities to staff wishing to join a credit union. Since the turn of this century the Welsh Government has supported credit unions throughout Wales helping them to fund premises, staff and communications. The Welsh Government has engaged with Local Authorities and Local Health Boards in Wales to encourage the adoption of payroll schemes. They have also written to private companies to encourage them to make payroll deduction schemes available to their staff. This year the Welsh Government is also supporting credit unions work in schools, prisons and job centres. Mark concluded by encouraging credit unions to play an active role in assisting the establishment of community ownership of public assets and for Welsh credit unions to become actively involved in plans to establish a public bank in Wales.
Gordon Ferguson from the Financial Conduct Authority started the Saturday morning session with a presentation on Anti-Money Laundering and why it is important for credit unions to comply with the Regulatory guidelines. Gordon spoke about the importance of credit unions having robust anti-money laundering systems and controls to reduce the risks to credit union operations: credit union members and to society as a whole. Gordon urged credit unions to undertake a risk assessment on the dangers of money laundering and to regularly update policies and procedures. He underlined the importance of credit unions being in control of the risk of money laundering at a Senior Manager level and the importance of regular staff training. Customer due diligence was essential to identifying where risks are and the importance of Knowing Your Customer. Gordon ended by posing a series of questions that credit unions should have a positive answer to including; having regularly reviewed, documented AML policies & procedures; ensuring that the MLRO and staff understand these policies & procedures; undertaking additional checks on Politically Exposed Persons (PEPs) who are a higher risk and if credit unions have a succession plan for replacing MLROs.
Marcela Hashim, Lead Associate Credit Unions Team at Prudential Regulation Authority (PRA) then gave an update on the PRA as a regulator and its remit for credit unions "safety and soundness" with the aim of regulating credit unions that are in a sound financial position and being well run as well as being to able to monitor what might go wrong and when things do go wrong to be able to undertake an orderly closure. Marcela then spoke about the recent Rulebook changes including the conditions required by credit unions undertaking "additional activities". She spoke about the importance of complying with the requirements of the new Senior Managers Regime. She also stressed the importance of having an up to date "Single Customer View" that could be accessed electronically within 24 hours. Marcell then gave an update on the Electronic Reporting system that came into force in January 2017. A total of 78% of UK credit unions made the deadline for the December 2016 CQ, rising to 95% by the end of February 2017. The first returns revealed that less than 24% of UK credit unions actually had corporate members and that only 4% had deferred shares. Some common errors were highlighted from the first round of electronic reporting including entries that said that 31 credit unions had zero regulatory capital and 103 credit unions saying that they do not hold any deposits or investments. Marcela concluded by saying that credit unions with assets of £15m + and assets above £40m are more closely supervised. For the majority with assets below £15m supervision would be undertaken based on returns, SCV and notifications of significant events with potential prudential impact.
Harpreet Singh Likhari, SCV Data Assurance Manager from Financial Services Compensation Scheme, delivered as presentation on the importance of the Single Customer View to meet the FSCS obligation to payout the majority of depositors within 7 days of default. Harpreet reported that to date 39 credit unions with over 45,000 members had been compensated under faster payout. Harpreet went on to highlight some changes that had an effect on the SCV structure including a requirement for more customer contact details. He said that the recent changes had removed the opt out clause for companies with less than 5,000 eligible accounts and that the time to produce the SCV had been reduced from 72 hours to 24 hours. All credit unions must now be able to identify all eligible depositors and remove all ineligible depositors from the SCV. The original SCV had 28 data fields whereas the new on from December 2016 has 51. Having researched a number of SCV the FSCS had identified issues including reporting of duplicate customers that could result in overpayments being made and incorrect balances. There were also issues with ineligible accounts being included in the SCV.
Antony Elliott OBE, Chief Executive of The Fair Banking Foundation, gave a presentation on a piece of research undertaken by the FBH on credit unions encoraging borrowers to save at the same time as repaying their loans. The report entitled "credit unions creating good habits" was undertaken with 2,172 credit union members from a variety of different types of credit unions. In response to the question of whether or not it was helpful to save at the same time as paying off their loan, 97% of those questioned said that they felt it was. Looking at the before and after impact of saving whilst paying back their loan the number on previously identified none savers who said that they would now save regularly rose from 39% to 67%. The number of regular savers before taking out the loan rose from 26% to 90% who were now committed to saving regularly. When questioned about the fact that having to save had increased the amount of interest they had to pay 79% of all of those questioned said that they were happy to pay a bit more in interest for the encouragement to save. Of those questioned 42% said the amount of interest paid was what they expected it to be whilst 39% said it was less than they expected. Only 10% thought that it was higher than they expected.
Nigel Bailey, CEO Citysave Credit Union, explained that prior to becoming CEO with Citysave he had worked for Barclays for 37 years. With a number of larger credit unions now attempting to compare themselves and compete with banks, Nigel suggested that this was a losing battle and that instead credit unions need to be different to banks and concentrate on their unique selling points. These include; appealing to a defined demographic wanting to access simple products; offering a local and personal service; providing savings opportunities and loan repayment options through payroll deduction and providing unique and bespoke payment envelopes. Highlighting the sort of product and service that he felt credit unions should concentrate on Nigel spoke about the Citysave Tenant Account which has been set up to help recipients of Universal Credit to better manage their finances and ensure that rent, as a priority debt is paid automatically. Citysave have worked closely with Engage to provide a genuine alternative to a high street bank account which includes a contactless debit card and access to an Envelopes money management tool. The card also offers rewards and discounts with major shopping and local shopping outlets. Which of the major banks would be prepared to offer this service to low income clients?
Bernard Cogan, CUNA Mutual, spoke about General Data Protection Regulation which will replace the current Data Protection Act in May 2018. Bernard explained that the GDPR retains the same core rules as the DPA but that strengthens individual persons rights. The GDPR is being Introduced to harmonise the data privacy regulatory environment in the EU The GDPR will provide for more information to individuals about the processing of their data and will Introduce harder obligations to notify security breaches. There will also be tighter rules on transferring data EU citizens outside the EU and imposes heavy fines for breaches of the new rules and allows individuals to sue for damages. Credit unions will need ensure a level of security appropriate to the nature of the data and the harm that might result from a breach of security. The data controller must take reasonable steps to ensure the reliability of any employees who have access to the personal data and be clear about who in your organisation is responsible for ensuring information security. You will need to make sure you have the right physical and technical security, backed up by robust policies and procedures and reliable, well-trained staff and be ready to respond to any breach of security swiftly and effectively. You will also be expected to report to the Board regularly, perhaps monthly for the first year of GDPR and strive to change the culture of credit union around data protection.
The formal presentations were followed by three interactive workshops:
Dina Devalia - What are the warning signs of a failing credit union? Credit Union Insolvency Expert and Financial Services Director at PKF-Littlejohn LLP
Mandy Bygrave - Coventry & Warwickshire CDA - Outsourcing - How do you ensure that you are following legislation and regulator guidelines when outsourcing debt collection
Andrew Breese - CEO Moneywise Credit Union - Is your credit union safe from cybercrime or identity theft?