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Armagh Credit Union

Risk Management Policy
This policy was adopted by the Board of Directors of Armagh Credit Union Limited.

Signed:Position Position ________________ ________________

Date:

Armagh Credit Union is authorized and regulated by the Financial Conduct Authority and Prudential Regulation Authority Registration Number 573925: Version Dec2015


Armagh Credit Union

Risk Management
The Credit Union, through its Board, management and staff, must be able to respond to changing circumstances and to address risks that might arise from changing business or economic conditions, a decline in the effectiveness of internal controls; the initiation of new business activities or the offering of new products and services. It is important to the success of the Credit Union's risk management efforts that risks be defined consistently throughout the Credit Union in accordance with the following definitions (these items will form the discussion/agenda for a quarterly meeting of the Board) 1. Credit Risk: Credit risk is the risk to earnings and capital arising from an obligor 's failure to meet the terms of any contract with the Credit Union, or otherwise fail to perform as agreed. 2. Interest Rate and Market Risk: Interest Rate and Market risk are those risks to a financial institution earnings and asset quality and valuation resulting from adverse movements in market rates or prices, such as interest rates, foreign exchange rates or equity prices. 3. Liquidity Risk: Liquidity risk is the risk to earnings or capital that arises from a Credit Union's inability to meet its obligations when they come due without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. It also arises from the Credit Union's failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. 4. Transaction Risk: Operational risk arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud or unforeseen catastrophes will result in unexpected losses. Operational risk includes both transaction and strategic risk. Transaction risk is the risk to earnings or capital arising from problems with service or product delivery and may include potential financial losses from human error or fraud, incomplete information, and related decision-making or operational disruption. Do we ensure that when disposing of information systems that the disks are cleaned? 5. Compliance and Legal Risk: As a major community business organization, the Credit Union, its directors, management, and staff must operate in compliance with a myriad of laws, rules and regulations. Compliance risk arises from violations of or nonconformance with those laws, regulations, or prescribed practices which govern the Credit Union's activities. Legal risk arises from the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect the operations or condition of a banking organization. Legal risk also arises from violations of or nonconformance with laws, regulations, prescribed practices or industry standards, or ethical standards. Failure to interpret legislation and regulation correctly could potentially subject the Credit Union and its directors and officers to fines and civil money penalties by regulators and result in
Armagh Credit Union is authorized and regulated by the Financial Conduct Authority and Prudential Regulation Authority Registration Number 573925: Version Dec2015


Armagh Credit Union

lawsuits by customers and others. Exposure to compliance and legal risks can also dramatically affect the Credit Union's reputation, strategic alternatives, and operations. 6. Reputation Risk: Reputation risk is the potential that negative publicity regarding an institution's business practices, whether true or not, will cause a decline in the member base, costly litigation, or revenue reductions, often as a result of poor earnings, regulatory censure, significant fraud or litigation and failure to provide services or products in conformity to the local market. This type of risk affects the Credit Union's ability to establish new relationships or services or to continue servicing existing relationships. 7. Strategic Risk: Strategic risk results implementation of those decisions. This organization's strategic goals, the business resources deployed to support achieve implementation. from adverse business decisions or the improper risk is a function of the compatibility of an strategies developed to achieve those goals, the ment of those goals, and the quality of

8. Operational Risk: Operational risk results from a failure in our computer system; what is the risk if our software/hardware provider goes out of business, do we have an alternative, do we have off-site backups, do we test our backup, is our business continuity plan up-to-date. Can staff download and install software? Do staff insert removable media such as a USB stick into a computer?

The Board and Management desire to manage risks at a level that permits the Credit Union to grow and achieve its strategic business objectives, while conducting business in a safe and sound manner, complying with all applicable regulations, and provide a return to members that meets or exceeds their expectations. The overall risk environment of the Credit Union will be considered quarterly where an in-depth report shall be given by the Chair of Credit Committee, the chair of Credit Control Committee, the chair of Investments, Finance and Business Committee, Information Security Officer, the Head of the Internal Audit Committee and the Manager. The agenda for the meeting each quarter should include the following items.

Armagh Credit Union is authorized and regulated by the Financial Conduct Authority and Prudential Regulation Authority Registration Number 573925: Version Dec2015


Armagh Credit Union

1. Credit report should include: Loan provisions ============ Bad debt provision Operations ======== Number of Number of Number of Number of ==== Accounts in Arrears letters sent last quarter phone calls made last quarter meetings with members last quarter

Loan rescheduling and loan top-ups ============================ Number of loans in arrears that were rescheduled last quarter Number of loans rescheduled this year to date Loans top-up last quarter Loans top-up this year to date Recoveries ========= Amount recovered last quarter Amount recovered this year to date Accounts with Solicitors =================== Number of accounts referred to solicitor last quarter Number of accounts refereed to solicitors this year to date Number of accounts with Judgement last quarter Number of accounts with Judgement this year to date Other loans with difficulties ===================== Comment on any loan not in arrears but which may go bad Stubbs Gazette/Experience, member(s) whose name has appeared recently Loan arrears situation ================== Comment of overall loan arrears situation Short term work plan for next quarter Long term work plan over the year Top 50 Loans situation ================== Comment on the situation regarding the top 50 loans
Armagh Credit Union is authorized and regulated by the Financial Conduct Authority and Prudential Regulation Authority Registration Number 573925: Version Dec2015


Armagh Credit Union

2. Interest Rate: a) Information on current and projected interest rates b) Quarterly Business Plan 3. Liquidity: Do we have sufficient liquidity? 4. Transaction a) Any transaction problems uncovered during the internal audit? b) Are our controls sufficient? 5. Compliance and Legal Risk a) or b) c) Discuss if Armagh CU is compliance, whether additional training is required for staff, Directors Supervisors. Discuss whether is in any possible pending legal issues which may effect Armagh CU. Any problems with loans to officers, insufficient credit checks, etc?

6. Reputation Are there any potential for bad PR? 7. Strategic Are we making the correct decisions? 8. Operational a) b) c) d) e) f) g) h) What is the risk if our software/hardware provider goes out of business? What do we have an alternative ? Do we have off-site backups? Do we test our backup? Is our business continuity plan up-to-date? Penetration test to determine the capability of unauthorized access to members data. Is the information risk assessment up-to-date? If an information systems was disposed, were the disks cleaned?

Armagh Credit Union is authorized and regulated by the Financial Conduct Authority and Prudential Regulation Authority Registration Number 573925: Version Dec2015