With the constant increase in fees, the attempt to minimize the human factor due to technology and unpredictability of banking regulations, many consumers see the Credit Unions as their solution. In Banks, depositors are referred to as customers while in Credit Unions; they are called members since depositors of Credit Unions have stakes in the Institutions through shareholding arrangements. Credit Unions therefore, have special and specific obligations to its members.

Like Banks, Credit Unions accept deposits, make loans and of recent times regionally, engage in a wide array of other financial services. While both Banks and Credit Unions may offer similar services, the customer experience you get, tends to be somewhat different. Credit unions are considered primarily a savings institution. Therefore, many savings products are designed to help members save more efficiently, and at the same time increase their ownership in the Credit Unions. During borrowing, Credit Unions despite employing effective Risk Management, always seek to find the best solutions and guidance to the ordinary person on a personal level during the entire lending process.

Upon deciding whether to utilize the services of a Bank or that of a Credit Union, it is important to consider which works best for your particular financial needs. Credit Unions also tend to offer its member higher savings rates and lower bank fees. Banks generally offer a lower savings rates and much higher fees and are for-profit institutions due to the ownership structure, whether private or publicly traded. Credit Unions’ ownership as mentioned previously are from their own depositors while the depositors are not necessarily owners of Banks. As Credit Unions are non-profit, these Institutions can afford to offer more-competitive rates, lower fees and easier loan processes. However, the assets of Banks tend to be larger for most part. As such, Credit Unions may be limited in services offered. Bank customers do have a wider range of products and services to choose from, but the challenge tends to be the constant increase in fees and reduced rate in savings.

From a regulatory and AML/CFT Program Management perspective, Banks conduct Know Your Customer (KYC) Due Diligence on its customers. Credit Unions conduct Know Your Member (KYM) Due Diligence on its members. Despite, terminologies, the Due Diligence Procedures are similar based on the requirements outlined in laws and regulations.

General Customer Due Diligence and Member Due Diligence Requirements at Banks and Credit Unions:

 A Original and Valid Photo ID (preferable Passport)

 Proof of Address (Utility Bill, Bank Account Statement, Driver’s License, Electoral Card, Lease/Tenancy Agreement, Insurance Property Confirmation etc.)

 Proof of Address (no more than 3 – 6 months old)

 Job Letter or evidence of Work Permit

 Bank Reference

 Professional Reference

 Proof of Temporary Residency (Non-national)

 Proof of Income

 Source of Funds

 Source of Wealth (depending on type of customer/member or overall risk etc.)

 Pre-background checks on customers/members/employees

 Risk Assessment on customers/ members/employees

It can be seen above that Credit Unions, as Banks must conduct the same level of customer/member/employee Due Diligence. The Institution must also conduct ongoing Due Diligence on customers/members/employees. This includes, but is not limited to (1) assessing customer/member/employee risk profile, (2) monitoring of customer/member transactions, (3) updating employee information, as well as, that of customers/members, directors, officers and beneficial owners of accounts, (4) conducting post screening of customers/members/employees.

Banks and Credit Unions need to collect information on the customers/members in order to determine the relevant risks. Information such as (1) nature of account, (2) purpose of account, (3) expected pattern of activity, (4) origination and destination of funds, (5) basic KYC/KYM documentation, (6) nominal and beneficial owners of the account, and (7) location of customer/member business must be obtained from the client.

As can be seen above, the documentation is almost identical for Banks and Credit Unions. How the Due Diligence varies from Banks and Credit Unions will depend fully on the Institution’s AML/CFT Compliance Program, the governance culture of the Institution and by extension the power and latitude given to the Compliance Officer. The latter tends to be one of the overarching issues facing financial institutions today. Banks and Credit Unions in their attempts to satisfy regulatory requirements and correspondent relationships sometimes step a bit overboard in how Due Diligence is conducted. This in most cases is often driven by the Compliance Officer’s recommendations since Board and Management rely on this person. These situations as a result create a lot of inconveniences and challenges to their customers/members. In trying to appease the laws and correspondent requirements, some Banks and Credit Unions overregulate themselves and add more unnecessary cost to their own bottom line. The Credit Unions or Banks that understand how to balance compliance with growth in a responsible way will comply by the laws and regulations; while at the same time will offer better service to their customers/members and grow their bottom lines.

Remember that any comments and queries can be sent to us at training@kawmanagement.com, training.kawmgmt@candw.ag or info@kawmanagement.com or visit our website at www.kawmanagement.com.