Advisories
Advisory 3
Intervention System
As a result of the new Credit Union Legislation,
the Nova Scotia Credit Union Deposit Insurance Corporation
(CUDIC) was created not only to provide credit union
members with deposit insurance coverage but also
to provide stabilization for the credit unions themselves.
The Act, under Section 156(c)(ii) states that one
of the "purposes of the Corporation" is "to protect
deposits in credit unions against impairment arising
from financial losses or insolvency by establishing
and implementing loss prevention programs and other
controls..." Under this mandate, CUDIC's Board has
implemented a new intervention program which replaced
the old "Watch List" system. Effective immediately,
all requirements under the old Watch List program
are terminated. For credit unions which received
financial assistance in the past, the section of
the Watch List 'A' agreement entitled "Preventative
Services" have been waived.
In its place, CUDIC's Board has adopted a three-tier
system to deal with identified problems in the system.
The first tier is the Early Warning List (EWL),
the second is the Performance Improvement Plan (PIP),
and the third is Supervision as set out in the new
Legislation.
EARLY WARNING LIST (EWL)
When problems or negative trends are noted, CUDIC
will investigate the seriousness of the problems.
If warranted, the Board has authorized the Chief
Executive Officer (CEO), after consultation with
Government and Credit Union Central, to place a
credit union on the Early Warning List. If a credit
union is placed on the Early Warning List, management
will be asked to provide us with a detailed Action
Plan outlining not only what corrective action is
to be undertaken but also the implementation and
duration of the Plan. When the goals of the corrective
action have been met, the CEO can remove the credit
union from the Early Warning List.
CONDITION:
There exists deficiencies in operations and controls;
breaches of Standards of Sound Business Practices;
breaches of CUDIC Advisories; or non-compliance
with the Act and Regulations PROCESS:
Formal notification in writing will be made to
the manager of the Credit Union (copy to the President)
If requested, CUDIC staff will meet with the Manager
or Board to discuss their concerns.
Corrective Action Plan required from Management.
The Plan must include not only the action to be
taken, but also establish benchmarks against which
the operation of the credit union will be monitored.
CUDIC will advise if modifications are needed.
It is recommended that the Credit Union should
consult with Credit Union Central's Development
Department for assistance and support.
PERFORMANCE IMPROVEMENT PLAN
If the Early Warning List fails to achieve the
required results, or if the initial problem is deemed
to be serious enough to warrant it, CUDIC's Board
can issue a directive to the credit union Board
requiring the Board to prepare and submit an acceptable
Performance Improvement Plan (PIP). Again the plan
must outline the corrective action, the duration
and acceptable benchmarks against which the performance
of the credit union will be monitored. The Board
of Directors will be held accountable for deviations
from the established benchmarks. The CUDIC Board
may release the credit union from the requirements
of the PIP program when the desired corrective action
has been completed, or at their option, downgrade
the credit union to the Early Warning List if satisfactory
progress has been made. If this is done, the requirements
under the directive are suspended until such time
as the credit union is released from the Early Warning
List or the performance of the credit union requires
the reinstatement of the PIP program. While a credit
union is under the PIP program, CUDIC's Board may
issue specific directives regarding necessary corrective
action to be taken by the credit union if the PIP
is not resulting in satisfactory correction of the
problem(s).
CONDITION:
There is a need to ensure the credit union implements
corrective actions to improve more serious weaknesses
such as declining profitability, high delinquency,
limited equity, lack of or excess liquidity or serious
non-compliance with the Act and Regulations, Standards
of Sound Business Practices or CUDIC Directives
and Advisories. Prevention is a priority to minimize
losses and avert a claim on CUDIC. PROCESS:
CUDIC will issue a Directive to the Credit Union
Board (copy to Management) which requires them to
initiate a Performance Improvement Plan to correct
problems and which may establish other terms, conditions,
restrictions and limitations on the credit union's
operations.
CUDIC staff will meet with the Board of the Credit
Union to discuss the problems and will have the
Board sign a Letter of Understanding and Acknowledgement
that they understand the nature of the problems
and what is required from them.
Credit Union is to develop the Performance Improvement
Plan including specific actions, implementation
and benchmarks against which the performance of
the credit union will be monitored. The PIP must
demonstrate the future viability and best future
options for the credit union's success.
The Credit Union Board will continue to direct
the affairs of the credit union and will be held
accountable for its operations.
CUDIC will conduct enhanced monitoring of the credit
union and its ability to achieve the required corrective
action.
Credit Union Central will provide assistance and
resources based on existing programs and services
or as requested and negotiated with CUDIC.
SUPERVISION
The last and most serious stage is Supervision
as described in Part XIV of the Credit Union Act.
Under this Part, the credit union is placed under
the Supervision of the Corporation and the Supervisor
can exercise all the various powers outlined in
Section 243(1) as required.
CONDITION:
The Performance Improvement Plan has not corrected
the problems or is not an appropriate solution and
the credit union requires CUDIC funding, major rehabilitation,
amalgamation or liquidation/dissolution. PROCESS:
The credit union is presented with a Supervision
Order from the Superintendent which appoints CUDIC
as supervisor.
CUDIC, as supervisor, is responsible for the future
operations of the credit union and ensuring the
credit union's day-to-day operations are consistent
with Standards of Sound Business Practices and the
Act and Regulations.
The Board of the credit union reports to the Supervisor
unless they have been suspended under the provisions
of the Act.
Again, Credit Union Central will provide assistance
and resources based on existing programs and services
or as requested and negotiated with CUDIC.
APPEALS
EWL: Decision of the CEO can be appealed to CUDIC's
Board.
PIP: Decision of CUDIC's Board can be appealed
to the Superintendent of Credit Unions.
Supervision: Supervision order can be appealed
to the Minister as outlined in the Act.
The intent of the program is to make it more flexible,
proactive and interactive than the former Watch
List System. Any credit union, regardless of reserves
or profitability, may be placed on the EWL if problems
are noted. By doing this and then regularly monitoring
the progress, problems can be resolved before they
deteriorate and impair the reserves of the credit
union.
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