About the Deposit Protection Program

Alliance of credit unions “Deposit Protection Program”

 

The decision to establish an alliance of legal entities entitled the “Deposit Protection Program” (DPP) was made at a foundation meeting held on June 5, 2007, where its By-Laws were also adopted. Six credit unions from various regions of Ukraine became founders of the alliance, including: “Anisia” Church credit union (Lviv), “Ukraina” credit union (Kharkiv), “Kharkivska kasa vzaiemodopomohy” credit union (Kharkiv), “Oberih” credit union (Malyn, Zhytomyr region), “Samopomich” credit union (Zalischyky, Ternopil region) and “Stanislavska” credit union (Ivano-Frankivsk). Later they were joined by “Azovska kredytna kompaniia” (Mariupol, Donetsk region). Now 48 credit unions are members of the Deposit Protection Program and approximately 20 credit unions are potential candidates for membership.

 

The range of the Deposit Protection Program’s activities includes financial, organizational, legal and methodological support of DPP’s members in providing a proper level of financial stability, transparency, market efficiency and social responsibility. In addition, DPP represents and defends its members’ interests in their relations with the state, infrastructure elements and foreign partners.

 

The aims of DPP refer to the basic philosophy and concept of DPP embodying its three roles “DPP as a single systemic brand”, “DPP as a system of collective security” and “DPP as a market club”. Thus, the Deposit Protection Program aims to achieve the following:

·         Guaranteeing a highlevelofbusinessreputationandauthorityofcreditunions that are DPP members, and forming their single public brand in the market;

·         Lobbying, representing and defending interests of DPP members in their relations with the state, as well as with control, law enforcement and judicial authorities;

·         Providing thefinancialstabilityofDPP members andprotectingdepositsoftheirmembers;

·         Coordinating and supporting an efficient market policy of DPP members, including their behavior under the conditions of the financial crisis and drastic changes in market trends;

·         Ensuring that DPP members adhere to international cooperative principles and prudential standards;

·         Conducting on-site and off-site monitoring of financial standing, services provided and management practices of members;

·         Training, consulting and informing members on a regular basis;

·         IntroducingeffectivewaysofincreasingDPPmembers’ liquidity.

·         Establishing necessary service infrastructure and attracting business partners;

·         Representing interests of DPP members in their relations with international organizations and foreign partners.

Untilthetimewhenthe nationalcreditunionmemberdepositguaranteesystemisestablished, the Deposit Protection Programiscalled upontodevelopathree-tiersystemofcredituniondepositprotection.

 

1. The basic tier – credit union tier – continuous and balanced development of credit unions.

 

2. The financial stability and adherence to prudential standards tier - Deposit Protection Program tier

 

On the basic tier, or the credit union tier, the following will be ensured:

·      Management andemployeesoperatinginaccordancewiththe legislationofUkraineandco-operativeprinciples;

·      Introductionofbestpracticesininternalcontrol, informationdisclosureandinteractionwithcredit union members.

 

On the second tier, the Deposit Protection Program will monitor (supervise) its members’ operations; consult, inform and train, defend their interests in relations with third parties, enhance the market standing of DPP members, conduct lobbying and PR policies in the interests of members and the single market brand of DPP. In particular, the following complex of activities is performed within a credit union:

·      Collection, processing and verification of credit unions’ reporting. This includes, in particular, preliminary reviewing of financial reports submitted by credit unions to the state regulator, in order to avoid mistakes resulting in sanctions against DPP’s members. To review financial reports, DPP uses software similar to that of the state regulator. Since the beginning of 2008, all DPP members submit their financial reports using the web-platform of DPP’s web-site;

·      Analysis of credit unions’ financial standing.  The regulator’s financial standards, PEARLS monitoring tool and early warning models are used to determine credit unions’ financial standing. As a result, credit unions receive monthly, quarterly and annual special analytic packages that include recommendations on how to improve their financial policy.

·      Off-site monitoring of credit unions’ operations is aimed at evaluating the performance of credit union management and governance bodies and the financial services it provides. Off-site monitoring includes assessment of internal policies, management and governance bodies’ decisions, deposit and loan contracts and other documents. The purpose of off-site monitoring is to prevent possible violations of law in credit union operations and make recommendations on how to deal with these violations.

·      On-site monitoring of credit unions’ operations is aimed at the inspection of the actual state of things within the premises of a credit union. Techniques used during on-site monitoring combine the best practices of on-site inspection conducted by the state regulator, external auditors, German cooperative bank auditors of DeutschenGenossenschafts- undRaiffeisenverbande.V. (DGRV) system and Polish credit union inspectors of the Polish Kasa Krajowa. This technique includes inspection of managerial, financial, legal, lending and accounting practices, and of the complex information system in a credit union. The technique is unique and has no analogues in Ukraine. As a result, a report is developed that includes recommendations on how to improve a credit union’s operations and remove violations of law if identified.

·      Development and administration of financial rehabilitation programs for DPP members. This may include support in correcting non-compliance revealed by the state regulator, through the development of action plans for restructuring a credit union’s financial stability and temporary administration of credit union.

·      Consulting and information support of DPP members. This includes reviewing and commenting on changes in legislation and court decisions related to credit unions, support and representation of credit unions in widely-publicized trials; legal and informative assistance to credit unions in their relations with controlling and law enforcement authorities, support in obtaining necessary licenses and relations with the state regulator, provision of updated market information, recommendations on possible ways of improving operations under the conditions of financial crisis etc.

·      Intermediation and support of DPP members in their relations with market infrastructure, training facilities, lenders and foreign partners.

 

Unlike the two previous tiers that are oriented towards the needs of a credit union, this tier is aimed at providing supplementary guarantees directly to credit union members, in order to protect their deposits. This will be achieved through deposit insurance. It is an innovative scheme of credit union member deposit guaranteeing, which is not widely spread in mature credit union systems. However, this scheme has proven efficiency in young credit cooperative systems and fits the conditions of Ukraine, because it allows to provide a high level of guarantees to credit union depositors over a relatively short period of time within the current legislation.

 

Open credit union.This information project is aimed at the public disclosure of financial information by credit unions to their members and other persons that wish to collaborate with credit unions. Any credit union may participate in the project irrespective of its membership in any associations. There are 49 credit unions participating in the project at the moment. This project is implemented jointly with All-Ukrainian Credit Union Association and some interested local associations.

Financial education. This project includes conducting special training programs aimed at enhancing credit union members’ general economic literacy level, as well as their knowledge of key legal and financial aspects of credit union operations. This project is implemented jointly with the All-Ukrainian Credit Union Association and some interested local associations.

Telephone Hotline. The Deposit Protection Program’s hotline started functioning on September 1, 2008. Depositors of DPP’s members as well as other interested persons can use a free 8-800-309-15-10 number in order to obtain information about the following: whether a credit union is a DPP member; which DPP members insure their deposits; what is “Open credit union” and who participates in the project etc.

Weekly news. The joint project with the All-Ukrainian Credit Union Association started on March 1, 2009. The weekly news mailing is aimed at monitoring mass media in the following fields: financial sector, currency market, agricultural sector, legislation news, real estate, fuel and energy complex, retail, labor market. Special attention is given to the financial market (particularly credit unions).

“My credit union”. The joint project with the All-Ukrainian Credit Union Association was started on September 1, 2009. The project is aimed at increasing financial literacy among current and potential credit union members. The project includes monthly financial and economic news, a “Financial literacy” component, and allows credit unions to spread information about it (advertising of credit union, its products, etc.).

The “Credit Union Herald” is aspecialized electronic publication that includes the following modules: “News and analytics” (information and analytics on financial markets, economics, credit unions and their associations. Published on a monthly basis); “Accounting and personnel” (analytical articles on accounting and human resources in credit unions. Published every two months); “Legislation and judicial practice” (analysis of legislation, summary of court practice and legal consulting. Published every two months). Besides, on a one-time basis we periodically publish specialized Herald issues devoted to annual financial reporting of credit unions or topical publications like “Summary of judicial practice. Credit unions in the light of court rulings”.

System of constant operational e-mailings jointly with the All-Ukrainian Credit Union Association.

 

Deposit Protection Program’s Board of Directors is a body that governs DPP’s activities in between Annual General Meetings. The Board of DPP is formed at the Annual General Meeting from among full participants of DPP in the order and for the term set by the Regulation on the Board of Directors. Representatives of Board members fulfill their duties on a voluntary basis and may not be employed by the Deposit Protection Program. The current Board of DPP was appointed on September 7, 2007.

•      Oleksandr Bashkatov – Chairman (CU “Azovska kredytna kampaniya”, Mariupol)

 

The Audit Committee is a body of DPP internal control formed at the Annual General Meeting. The main task of the Audit Committee is to control financial and economic operations of DPP. The Audit Committee of DPP that is incumbent today was appointed on September 7, 2007.

 

The Advisory Council of the Deposit Protection Program was established with the purpose of implementing best international practice in credit union stabilization and in the member deposit guarantee system. Its function is to make recommendations on the strategy of development and efficiency of performance of the Deposit Protection Program. The membership of the Advisory Council is defined by the resolution of the DPP Board. As of today, members of the Advisory Council of the Deposit Protection Program are: Bob McVeigh – Director of the Credit Union Central of Canada, former president of the World Council of Credit Unions; Grzegorz Bierecki – WOCCU Treasurer, CEO of the National Association of Cooperative Savings and Credit Unions in Poland; Andrew Poprawa – President and CEO of the Deposit Insurance Corporation of Ontario (Canada), Head of the International Credit Union Regulators Network; Roger Marshall – Manager of the Small Firms Division of the Financial Services Authority of the United Kingdom; PaulArmbruster– Headofthe InternationalRelationsDepartmentofDeutschenGenosenschafts- undRaiffeisenverbande.V.(DGRV) – Germany; Bodnar Otto – Chief Executive Officer of OTIVA (Hungary); Bohdan Kozy – Ukraine Credit Unions Strengthening Program Manager; Kenneth M. Smith - Director ACDIVOCA Branch Russia – USA; Sigitas Bubnis – CEO of the Central Credit Union of Lithuania, president of Proxfin (an international network of thirty community finance institutions and Développement international Desjardins (DID), Canada.

The President of the Deposit Protection Program’sis accountable to DPP’s Annual General Meeting, represents DPP and sets its general organization policy. Andriy Olenchyk, the Deputy Director of Ukraine’s Deposit Guarantee Fund, is President of the DPP.

 

Management is the executive body of the Deposit Protection Program and is appointed by the Board of DPP. Management of DPP ensures that resolutions of the  Annual General Meeting, Board and Audit Committee are fulfilled. The Chief Executive Officer is head of Management and has the power to represent the Deposit Protection Program without authorization. Ivan Vyshnevskyi is DPP’s CEO today. Deputy CEO is the former financial analyst of the State Commission for Regulation of Financial Services Markets, Oksana Solomchak.

 

DPP has 10 employees, including 5 former employees of the state regulator, and 6 contractors, including lawyers and certified auditors. In addition, leading credit union experts from Canada, Germany, Poland, Hungary and Ukraine provide consulting support to DPP.

 

·               Is a participant of the International Credit Union Regulators Network (ICURN) within the World Council of Credit Unions (WOCCU);

·               Collaborates with the Ukraine Credit Union Strengthening Project on conducting credit union on-site monitoring and financial rehabilitation programs;

·               Collaborates with the GTZ/DGRV “Support of Financial Activity in Rural Areas” Project;

·               Holds an exclusive license for PEARLS monitoring system software, issued by WOCCU;

·               Works within the contract signed with the Polish Kasa Krajowa and the Mutual Insurance Society of Polish Cooperative and Savings Credit Unions;

·                Collaborates with self-regulatory stabilization systems and credit union regulators of USA, Canada, Ireland, Great Britain, Lithuania, Germany and Hungary;

·               Participates in the work of the European credit union movement club.

 

The Deposit Protection Program is a member of:

·               The Consultant and Expert Board, Social Council affiliated to State Regulator,

·               The interdepartmental working group for establishing a state deposit guarantee system for credit unions;

·               The interdepartmental working group for credit union taxation,

·               Working groups on licensing and prudential supervision affiliated to the state regulator;

·               The continuing working group on finance and banking in developing and reforming the credit union system affiliated to the Parliamentary Committee;

·               The continuing advisory public body affiliated to the state regulator;

·               The working group on banking and financial activities of investor’s Board affiliated to the Cabinet of Ministers of Ukraine;

·               The specialized interdepartmental working group on development of Ukraine’s financial sector development strategy till 2015

·               On September 14, 2007 a Memorandum on Understanding and Collaboration was signed between the Deposit Protection Program and the state regulator – the State Commission for Regulation of Financial Services Market in Ukraine.

·               On March 13, 2008 a Memorandum on Understanding was signed by the State Commission for Regulation of Financial Services Market in Ukraine, the All-Ukrainian Credit Union Association, the Deposit Protection Program and international charity organization “Ukrainian Educational Center for Reforms”. The purpose of the memorandum is to have a coordinated policy on good governance, internal control and information disclosure in credit unions, member education and protection of their interests.

·               On January 30, 2009 the Agreement on Collaboration was signed by the Deposit Protection Program, the State Commission for Regulation of Financial Services Market in Ukraine and the National Association of Savings and Credit Unions. The purpose of the agreement is to collaborate on the development of a methodology and implementation of deposit guarantee and financial rehabilitation system for credit unions.

·               Professional dialogue with officials of the Parliament, the Cabinet of Ministers, President’s Office, National Security and Defense Council, Anti-monopoly Committee of Ukraine, State Commission for Financial Monitoring, State Tax Administration, key law enforcement authorities, Ministry of Finance, Ministry of Justice, National Bank, State Commission for Regulation of Securities Market.

·                    DPP participated in development of by-laws related to credit union operations

 

·                    IsapartyintheAgreementdatedApril 23, 2010between theAll-UkrainianCreditUnionAssociation, the DepositProtectionProgramandthe UkrainianUnitedCreditUnion;

·                    Jointly with the All-Ukrainian Credit Union Association founded a bi-monthly publication “The Credit Union Herald”;

·                    Has close business relations with three Ukrainian credit bureaus, Ukraine’s Association of Collectors, “Ukrainian payment systems” Ltd. and “Ukrkart” JSC.

·                    Has close business relations with main educational establishments that provide mandatory training for credit unions and National Bank’s University of Banking;

·                    Formed a network of journalists writing for leading business newspapers, magazines, TV-channels and information agencies of Ukraine;

·                    Signed an agreement of Collaboration with the Ternopil Association of Credit Unions aimed at analytical, consultant and information support.

 

·                    Is co-owner of the specialized insurance company “Ukrainian insurance company of credit unions” jointly with TUW SKOK, Poland (the Ukrainian side owns 61% of company’s capital);

·                    Agreement on Collaboration with the financial company “Oikokredit Ukraine”, founded by the international credit cooperative “Oikokredit”(Netherlands);

·                    Agreement on Collaboration with Volksbank;

·                    Agreement on Collaboration with the financial company “Ukrainian Credit Fund”, established by American investors with the support of ACDI/VOCA;