The Prudential Regulation Authority (PRA) has taken its first ever enforcement action against the directors of a credit union for their role in the collapse of Enterprise Business Credit Union Ltd (EBCU) in 2015
The regulator censured four individuals and banned two of them. This also marks the first time the they have censured a non-approved person, Michael Grimsdale.
Grimsdale and former director Richard Nichols are both banned from the financial services industry on the grounds of lack of integrity (and dishonesty on the part of Grimsdale).
The Prudential Regulation Authority has also issued public censures to Nichols and former directors Gillian Birkett and Phil Neale. All were involved in the failure of Enterprise the Business Credit Union, which had 1,900 members and £7m in savings.
The enforcement action related to governance failings and the management of conflicts of interest, including the fact that some of the individuals involved also held positions on an outsourcing company appointed to the credit union.
They entered into administration and subsequently liquidation in 2015 for failing to meet the requisite capital requirement.
Before this, the regulator said the individuals’ misconduct contributed to the credit union breaching a Prudential Regulation Authority requirement not to accept deposits, issue new loans or vary the terms of existing loans, which had been imposed in 2014 as a result of the credit union’s deteriorating capital position.
The regulator found that Grimsdale’s conduct demonstrated a lack of integrity and in some respects dishonesty, which has resulted in his ban. As director of the credit union’s outsourced service-provider, he paid out some £650,000 of loans in contravention of the regulator’s requirement and concealed his actions.
He also exploited his involvement to invoice and improperly pay fees to the outsourced third-party provider on materially higher terms than those agreed by the credit union board.
Nichols, Birkett and Neale have been censured for failing to act with due skill, care and diligence in performing their director roles at Enterprise the Business Credit Union.
They all held roles as remunerated directors at companies that received fees and commission – directly and indirectly – from the credit union.
In addition, Nichols has been banned for acting recklessly as to the accuracy of information he provided to the Enterprise the Business Credit Union’s auditors and the Prudential Regulation Authority concerning the credit union’s financial position.
Nichols - also a director of the outsourced service-provider - was in a better position than the other directors of the credit union to oversee and monitor the activities of the outsourced service-provider (and those of Grimsdale) but he failed to do so.
The regulator maintained this demonstrated a lack of integrity. Were it not for Nichols’ financial circumstances, the Prudential Regulation Authority would also have imposed a financial penalty of £20,000.
Sam Woods, deputy governor for prudential regulation and CEO of the PRA said: ‘Our first enforcement action against individuals involved in a credit union highlights the importance of strong governance within credit unions. Senior managers who fail to act with integrity in their roles at credit unions can expect to be held to account.’
The Financial Services Compensation Scheme (FSCS) has consequently paid out over £7m to EBCU’s members, of which it has recovered just under £3m to date.