FINANCIAL SERVICES Ombudsman Joe Meade has expressed concern to the Financial Regulator that credit unions and their members are being exposed to potentially significant losses due to very lax scrutiny of risky investments.

Mr Meade is understood to have expressed his concerns after examining a complaint in which a Co Galway credit union incurred a €1 million loss when its investment in a Friends First product was wiped out due to the near collapse of specialist lender International Securities Trading Corporation.

In a formal misselling complaint to Mr Meade's office, the Naomh Breandán credit union in Loughrea sought the return of its money from the broker who sold it the product last year.

The credit union has more than 11,500 members. Loans exceed €14 million and members' saving exceed €30 million.

Although the ombudsman upheld the credit union's complaint of misselling against the broker, he ruled that the broker and the credit union should each bear equal responsibility for the financial loss as the credit union did not adequately review the investment proposal.

The broker must pay €500,000 to the credit union as a result of the ruling, but the credit union itself must itself bear the loss of the remaining €500,000.

Mr Meade criticises the credit union officials for their failure to read contract documentation fully and for their decision to proceed with the investment after examining the proposal for less than half an hour.

He criticises the broker for not drawing attention to a clause which warned that the entire investment could be lost.

He is understood to have called for much tighter scrutiny of credit union investments.

Inadequate risk assessment of investment products - if found to be widespread - would put significant sums of members' money at risk, he is understood to have said.

The regulator declined to comment. However a spokeswoman referred to a 2006 guideline that says: "Investments by credit unions must not involve undue risk to . . . savings."