Export part as
CRED 1
Introduction
CRED 1.1
The Credit Unions Sourcebook
- 01/12/2004
CRED 1.1.1
See Notes
- (1) Welcome to the Credit Unions sourcebook, known as CRED for short. CRED is credit unions' guide to the main FSA Handbook, which contains all of the rules and guidance for all regulated firms, including credit unions. It puts into effect the FSA's commitment to provide credit unions with their own specialist sourcebook. The Handbook is a vast document and many parts of it are not relevant to credit unions. So we have tried to distil into CRED those parts of the Handbook which are most relevant. We believe that CRED contains enough information on what the FSA requires of credit unions to meet most of their day-to-day operational needs.
- (2) Northern Ireland credit unions are not covered by the Handbook or by CRED. They are exempt from the general prohibition on carrying on a regulated activity, and do not need to be authorised persons. Their exemption is reflected in the definition of credit union in the Handbook and CRED: "a body corporate registered under the Industrial and Provident Societies Act 1965 as a credit union in accordance with the Credit Unions Act 1979, which is an authorised person" (see CRED 2.7.1G for an explanation of defined terms). Northern Ireland credit unions are registered under their own separate legislation, not under the Industrial and Provident Societies Act 1965 and the Credit Unions Act 1979. The Credit Unions Act 1979 permits the Treasury to make reciprocal arrangements with the appropriate authority in Northern Ireland for the law applicable to credit unions registered in Great Britain to be applied to credit unions registered in Northern Ireland, when the latter operate in Great Britain (and for the law applicable to credit unions registered in Northern Ireland to be applied to credit unions registered in Great Britain, when the latter operate in Northern Ireland). No such arrangements have yet been made.
- 01/12/2004
CRED 1.1.2
See Notes
CRED does
not encompass the requirements associated with any regulatory permission other than
a Part IV permission to accept deposits. There are also additional
requirements in the Handbook for credit unions that are CTF providers in relation
to cash deposit CTFs. Other permissions are covered
elsewhere in the Handbook.
Thus, for example, a credit
union seeking a permission to
undertake a regulated mortgage activity would need to comply
with the requirements in
MCOB, and a credit union seeking a permission to undertake insurance mediation activity in relation
to non-investment insurance
contracts would need to comply with the requirements in
ICOBS
.
CRED 1.1.3
See Notes
Every credit union is either a version 1 credit union or a version 2 credit union.
The difference is that a version
1 credit union is subject to a requirement that it must not lend more than 15,000 in excess of a member's
shareholding. CRED 14.5 (Applications to
vary or cancel permission) describes how a credit union can switch between the two versions.
- 01/01/2007
- Past version of CRED 1.1.3 before 01/01/2007
CRED 1.1.4
See Notes
The approach we have taken in assembling the various chapters of CRED is as follows:
- (1) Where there are requirements that are specific to credit unions we have spelt these out in full. The chapters containing these requirements are Chapters 7 - 10 and Chapter 17.
- (2) Where there are requirements in the Handbook relating to the day-to-day operations of a wider range of firms than credit unions, we have provided substantive guidance on the way in which those requirements should apply to credit unions. The relevant chapters are 3 - 6, 11, 12 and 14. It should be noted that in these chapters, the guidance refers to rules which exist elsewhere in the Handbook and which must be observed by credit unions.
- (3) Where there are requirements in the Handbook covering to a wider range of firms than credit unions, but which do not relate to the day-to-day operations of credit unions, we have provided a brief summary of those requirements. In circumstances in which one of these chapters became relevant to a credit union, we would expect credit unions to access the full text in the Handbook. The relevant chapters are 13, 15 and 16.
- (4) Where there are requirements in the Handbook that do not relate to credit unions, the relevant chapter of the Handbook has not been covered in CRED. The various other specialist sourcebooks and the Training and Competence manual (TC) are examples of this.
- (5) The procedures for compensation (COMP) and for complaints against the FSA (COAF) have not been included.
- 01/12/2004
CRED 1.1.5
See Notes
It should be emphasised that in any circumstances
in which a credit union has
doubts concerning the FSA's requirements
as set out in CRED,
reference should be made to the Handbook,
and if necessary, in turn, to the Act and
any relevant statutory instruments.
- 01/12/2004
CRED 1.1.6
See Notes
- 01/12/2004
CRED 1.1.7
See Notes
The language used in CRED reflects the requirements of the main Handbook. Thus, in those
parts of CRED which
apply across the wider regulated community, the terminology used is that of
the main Handbook.
For example, in Chapter 3 (Principles for Businesses) reference is made to firms, clients and customers. Conversely, in those sections
of CRED which
are specific to credit
unions (such as Chapters 7 - 10), terminology specific to credit unions is used.
- 01/12/2004
CRED 2
CRED 2
CRED 2.1
What is this guide?
- 01/12/2004
CRED 2.1.1
See Notes
This
guide is an introduction to the Credit
Unions sourcebook (CRED).
It describes the contents of CRED,
where to find them and how to make use of them. This guide is a summary of
salient points in the Reader's Guide to the Handbook.
- 01/12/2004
CRED 2.2
Structure
- 01/12/2004
CRED 2.2.1
See Notes
CRED is
available on the Internet, on CD-ROM and on paper. Its structure and contents
are the same in each medium.
- 01/12/2004
CRED 2.2.2
See Notes
CRED follows
the same structure as the Handbook,
which consists of sourcebooks (providing sources of the FSA's requirements and guidance) and manuals (containing processes
to be followed) arranged in groups according to their subject matter. A table
of contents of the Handbook is
provided at Appendix 1 to this sourcebook.
- 01/12/2004
CRED 2.2.3
See Notes
- 01/12/2004
CRED 2.2.4
See Notes
Each sourcebook or manual has a reference
code of two or more letters. This is usually a contraction or abbreviation
of its title, for use in cross-references in the text and in the index. Thus,
for example the Credit
Unions sourcebook abbreviates to CRED, while the Supervision manual abbreviates
to
SUP
.
- 06/10/2007
- Past version of CRED 2.2.4 before 06/10/2007
CRED 2.3
Contents of CRED
- 01/12/2004
CRED 2.3.1
See Notes
- 01/12/2004
CRED 2.3.2
See Notes
- 01/12/2004
CRED 2.3.3
See Notes
After the application provision, each
chapter will normally contain a statement of purpose. This explains the objective
of the provisions in the chapter: What standards is it intended to uphold?
Does it reinforce one or more of the Principles for Businesses? What result
does it aim at?
- 01/12/2004
CRED 2.4
Status of provisions
- 01/12/2004
CRED 2.4.1
See Notes
CRED contains
the same types of provision as the Handbook.
Their status is indicated by icons containing the letters below. The precise
legal status of any particular provision depends upon the terms of the Act and the particular
power exercised to create that provision. Schedule 4 of the Handbook lists the powers used to make the
various parts of the Handbook.
So what follows is only an introduction.
- 01/12/2004
Rules: R
CRED 2.4.2
See Notes
The letter R is used to indicate general rules made under section
138 of the Act and
specialised rules made
under sections 140 to 147 and other powers. The legal effect of a rule varies, depending
on the power under which it is made, and on the language used in the rule - is it mandatory
language or not? Most of the rules in
the Handbook create
binding obligations on firms (that
is, authorised persons).
If a firm contravenes
such a rule,
it may be subject to enforcement action.
- 28/08/2007
- Past version of CRED 2.4.2 before 28/08/2007
Evidential provisions: E
CRED 2.4.4
See Notes
The letter E is used to indicate an evidential provision.
This usually indicates a practice or procedure in relation to a rule which, if observed,
will "tend to establish compliance" with the rule to which it relates. Conversely, failure
to observe that practice or procedure will "tend to establish contravention"
of the rule to
which it relates. For example, CRED
14.3.11 G indicates that
a failure of a credit union to
have an internal audit function would "tend to establish
contravention" of the rule (described
earlier in CRED 4.3.1 G) that all firms
should take reasonable care to establish and maintain such systems and controls
as are appropriate to their business.
- 01/11/2007
- Past version of CRED 2.4.4 before 01/11/2007
CRED 2.4.5
See Notes
E is also used for paragraphs that make
up the Code of Practice
for Approved Persons (APER 3)
made under section 64 of the Act.
That code may be relied on so far as it tends to establish whether or not
the conduct of an approved
person complies with the Statements
of Principle for approved
persons.
- 01/12/2004
Guidance: G
CRED 2.4.6
See Notes
The letter G is normally used to indicate guidance given under section
157. The guidance in
the Handbook relates
to the operation of the Act,
the rules in
the Handbook and
other matters. Most general guidance will
be given through the Handbook,
but in certain cases, where the guidance is
urgent or temporary, it will be published in a separate Guidance Note. Material published in vehicles
other than it Handbook or Guidance Notes, for example
in newsletters or on the FSA's website,
is not guidance unless
it says that it is.
- 01/12/2004
CRED 2.4.7
See Notes
Guidance may be used to explain the implications of other provisions, to indicate possible means of compliance, to recommend a particular course of action or arrangement, and for other purposes. Whatever guidance is used for, it is not binding on those to whom the Act and rules apply, nor does it have 'evidential' effect. It need not be followed in order to achieve compliance with the relevant rule or other requirement. So a credit union cannot incur disciplinary liability merely because it has not followed guidance. Nor is there any presumption that departing from guidance is indicative of a breach of the relevant rule. However, credit unions should at all times take care to ensure that where the guidance refers to, or describes rules in CRED or elsewhere in the Handbook, those rules are observed.
- 01/12/2004
CRED 2.4.8
See Notes
Guidance is
generally designed to throw light on a particular aspect of regulatory requirements,
not to be an exhaustive description of credit
unions' obligations. If a person acts
in accordance with guidance in
the circumstances contemplated by that guidance,
then the FSA will
proceed on the footing that the person has
complied with the aspects of the rule or
other requirement to which the guidance relates.
- 01/12/2004
CRED 2.4.9
See Notes
Rights conferred on third parties (such
as credit union members)
cannot be affected by guidance given
by the FSA. Guidance on rules, the Act or other legislation
represents the FSA's view,
and does not bind the courts, for example in relation to an action for damages
brought by a private person for
breach of a rule,
or in relation to the enforceability of a contract where there has been a
breach of general prohibition on
carrying on a regulated
activity in the United
Kingdom without authorisation).
A person may
need to seek his own legal advice.
- 01/12/2004
CRED 2.4.10
See Notes
G is also used for the FSA's statement of the procedure for giving
statutory notices under section 395 of the Act, the FSA's policy with respect to the imposition
and amount of penalties under the Act (see DEPP) and to indicate the arrangements made
by the FSA under
paragraph 7 of Schedule 1 to the Act for
the investigation of complaints arising in connection with its exercise of
its non-legislative functions (see COAF).
Direction: D
CRED 2.4.11
See Notes
The letter D is used to indicate directions
and requirements given under various powers conferred by the Act, for example, directions
under section 51(3) of the Act about
the form and content of applications for Part
IV permission. Directions and requirements are binding upon
the persons or
categories of person to
whom they are addressed.
- 01/12/2004
CRED 2.4.12
See Notes
The
letter D is also used to indicate non-FSA legislative
material, namely directly applicable EU and UK materials, such as directives,
statutes and regulations. In such cases, the source material is clearly indicated.
- 01/12/2004
CRED 2.5
Numbering: Pages
- 01/12/2004
CRED 2.5.1
See Notes
Page numbers are not important in CRED. In the paper version, page numbering starts again at the beginning of each chapter. But each page of a chapter shows:
- (1) the reference code for the sourcebook or manual;
- (2) the number and title of the chapter; and
- (3) the number and title of the section of the chapter.
For example, the first page of Chapter 3 of the Supervision manual shows at the top, on the left 'SUP 3: Auditors' and on the right 'Section 1: Application'. In addition, each page of a chapter shows, at the foot of the page, the number of the last paragraph on the page.
- 01/12/2004
CRED 2.5.2
See Notes
Each page of an annex shows, at the top
of the page, the reference code, number and title of the chapter to which
the annex relates, and the number and status of the annex.
- 01/12/2004
CRED 2.5.3
See Notes
Each page of an appendix shows, at the
top of the page, the reference code of the sourcebook or manual to which the
appendix relates, and the number and title of the appendix.
- 01/12/2004
CRED 2.5.4
See Notes
- 01/12/2004
CRED 2.5.5
See Notes
- 01/12/2004
CRED 2.6
Numbering: Contents
- 01/12/2004
CRED 2.6.1
See Notes
The main text of CRED is numbered as follows:
- (1) chapter 1 (2, 3 etc)
- (2) section 1.1 (1.2, 1.3 etc)
- (3) paragraph 1 (1.1.2, 1.1.3 etc)
- (4) sub-paragraph 1.1.1(1) (1.1.1(2), 1.1.1(3) etc)
- 01/12/2004
CRED 2.6.2
See Notes
Further sub-paragraphs are shown by (a),
(b), (c) and so on, and then by (i), (ii), (iii) and so on. For example, the
third paragraph of the second section of the first chapter in the Conduct
of Business sourcebook, if it were a rule,
would be COBS 1.2.3R. If there were two
further sub-paragraphs, it would be COBS 1.2.3R
(1)(a)
- 01/11/2007
- Past version of CRED 2.6.2 before 01/11/2007
CRED 2.7
Defined terms
- 01/12/2004
CRED 2.7.1
See Notes
Defined terms used in the text are shown in italic type. Where a word or phrase is in italics, its definition can be found in the Handbook Glossary. Where a word or phrase which is shown in italics in one part of the text appears without italics in another part, it is meant to be given, where un-italicised, its ordinary natural meaning. See CRED 13 Annex 1A 1 G (2) on the meaning of "credit union".
- 01/01/2005
- Past version of CRED 2.7.1 before 01/01/2005
CRED 2.8
Schedules
- 01/12/2004
CRED 2.8.1
See Notes
CRED contains
eight schedules as follows:
- 01/12/2004
Transitional provisions
CRED 2.8.2
See Notes
The list of transitional provisions in CRED modifies the general
transitional provisions contained elsewhere in the Handbook to apply specifically to credit unions.
- 01/12/2004
Schedule 1: Record keeping requirements
CRED 2.8.3
See Notes
Schedule 1 provides a list of the detailed
record keeping requirements in CRED and
where they are to be found.
- 01/12/2004
Schedule 2: Notification requirements
CRED 2.8.4
See Notes
Schedule 2 provides a list of the detailed
notification requirements in CRED and
where they are to be found.
- 01/12/2004
Schedule 3: Fees and other required payments
CRED 2.8.5
See Notes
Schedule 3 provides a list of any fees
and other payments for which a credit
union may be liable under CRED.
As details of fees and other payments appear elsewhere in the Handbook, we have also
included a table of where these can be found. (Note that these will also be
summarised in Schedule 3 to the relevant Handbook module
in which they appear).
- 01/12/2004
Schedule 4: Powers exercised in making the Handbook.
CRED 2.8.6
See Notes
- 01/12/2004
Schedule 5: Rights of action for damages
CRED 2.8.7
See Notes
Schedule 5:
- (1) gives guidance (where relevant) on the availability of rights of action to private persons under section 150 of the Act; and
- (2) lists the rules in CRED:
- (a) to which rights of action under section 150(1) of the Act; and
- (b) to which rights of action apply at the suit, not only of a private person, but of a person who is not a private person, in accordance with section 150(3), with a statement to whom the rights have been extended.
- 01/12/2004
Schedule 6: Rules that can be waived
CRED 2.8.8
See Notes
- 01/12/2004
Schedule 7: Schedule of releases
CRED 2.8.9
See Notes
- (1) The purpose of schedule 7 is to help credit unions keep track of amendments made to CRED since it was first published. It lists by serial number each release issued, its date of publication and its contents. The full text of each release is on the FSA's website at www.fsa.gov.uk.
- 01/12/2004
CRED 2.9
Glossary of definitions
- 01/12/2004
CRED 2.9.1
See Notes
- 01/12/2004
Export chapter as
CRED 3
The FSA's Principles for Businesses
CRED 3.1
Application and purpose
- 01/12/2004
CRED 3.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 3.1.2
See Notes
The Principles for Businesses (PRIN) sets out, in a small number of high-level requirements, the basic obligations of all regulated firms. They provide a general statement of regulatory requirements, and the FSA considers that the Principles are appropriate expressions of the standards of conduct to be expected of all financial firms including credit unions. The purpose of this chapter is to provide additional guidance on the provisions of PRIN as they relate to credit unions.
- 01/12/2004
CRED 3.1.3
See Notes
- 01/12/2004
CRED 3.1.4
See Notes
In applying the Principles to credit unions, the FSA will be mindful of
proportionality. In practice, the implications are likely to vary according
to the size of the credit
union.
- 01/12/2004
CRED 3.2
The Principles
- 01/12/2004
CRED 3.2.1
See Notes
The table in PRIN 2.1.1 R sets out the full text of the Principles. These are repeated below for ease of reference.
- (1) Integrity. A firm must conduct its business with integrity.
- (2) Skill, care and diligence. A firm must conduct its business with due skill, care and diligence.
- (3) Management and control. A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
- (4) Financial prudence. A firm must maintain adequate financial resources.
- (5) Market conduct. A firm must observe proper standards of market conduct.
- (6) Customers' interests. A firm must pay due regard to the interests of its customers and treat them fairly.
- (7) Communications with clients. A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
- (8) Conflicts of interest. A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
- (9) Customers: relationships of trust. A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
- (10) Clients' assets. A firm must arrange adequate protection for clients' assets when it is responsible for them.
- (11) Relations with regulators. A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.
- 01/12/2004
CRED 3.3
Consequences of breaching the Principles
- 01/12/2004
CRED 3.3.1
See Notes
The Principles are expressed in general
terms. They are designed to be sensitive to individual circumstances and to
be proportionate. Their practical implications for firms' conduct, organisation and resources
will depend on the size of the firm and
the business it undertakes. The Principles do not require small firms to act or be treated
as if they were large.
- 01/12/2004
CRED 3.3.2
See Notes
However, being ready, willing and organised
to abide by the Principles is a critical factor in applications for authorisation and whether
a credit union is
continuing to be fit and proper. Therefore, breaching a Principle makes a credit union liable to
the FSA's disciplinary
sanctions. The full provisions of how the FSA will use its powers in support of its
enforcement functions under the Act are
set out in
EG
. The FSA will be proportionate in the use of its
powers.
- 28/08/2007
- Past version of CRED 3.3.2 before 28/08/2007
CRED 4
Senior
management arrangements, Systems and Controls
CRED 4.1
Application and purpose
- 01/12/2004
CRED 4.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 4.1.2
See Notes
The purpose of this chapter is to provide
further guidance to credit unions with a permission to accept deposits (see CRED 13.5) on the application of Senior management arrangements,
Systems and Controls (SYSC),
together with additional rules and guidance that are specific
to credit unions.
- 01/12/2004
CRED 4.1.3
See Notes
SYSC 1
to
SYSC
3
apply to all credit unions in respect
of the carrying on of their regulated
activities and unregulated activities in a prudential context.
SYSC 18
applies to all credit unions without
restriction.
CRED 4.1.4
See Notes
The purposes of SYSC are:
- (1) to encourage directors and senior managers to take appropriate practical responsibility for the credit union's arrangements on matters likely to be of interest to the FSA because they impinge on the FSA's function under the Act;
- (2) to reinforce Principle 3, under which all firms including credit unions must take reasonable care to organise and control their affairs responsibly and effectively with adequate risk management systems;
- (3) to encourage all firms, including credit unions, to vest responsibility for effective and responsible organisation in specific directors and senior managers.
- 01/12/2004
CRED 4.1.5
See Notes
- 01/12/2004
CRED 4.1.6
See Notes
Specific guidance on how these rules, and the general guidance that accompanies them, apply to
the particular circumstances of credit
unions is set out below.
- 01/12/2004
CRED 4.1.7
See Notes
SYSC 3.1.2 G (3)
states that detailed
requirements regarding systems and controls relevant to particular types of firm may be covered elsewhere
in the Handbook. This chapter includes all
such specific requirements
for
credit unions.
CRED 4.1.8
See Notes
SYSC 18
reminds firms of the provisions of the Public Interest
Disclosure Act 1998 and encourages them to consider adopting appropriate internal
whistleblowing procedures. This applies equally to credit unions but is not the subject of further guidance in this chapter.
- 01/01/2007
- Past version of CRED 4.1.8 before 01/01/2007
CRED 4.2
Apportionment of responsibilities
- 01/12/2004
CRED 4.2.1
See Notes
Under SYSC 2.1.1 R every firm is required to take
reasonable care to maintain an appropriate apportionment of significant responsibilities
among its directors and senior managers, so that
it is clear who has those responsibilities and so the firm can be governed adequately.
CRED 4.2.2
See Notes
In order to comply with the requirements,
a credit union will
need to be clear who is responsible for which significant matters within the credit union.
- 01/12/2004
CRED 4.2.3
See Notes
Among the significant responsibilities to be apportioned will be responsibility for:
- (1) finance;
- (2) lending;
- (3) arrears control;
- (4) money laundering reporting;
- (5) complaints handling.
- 01/12/2004
CRED 4.2.4
See Notes
SYSC 2.1.3 R requires that
the actual task of apportioning significant responsibilities to different
people must itself be allocated by the credit
union to one or more individuals to carry out. The task of overseeing
the establishment and maintenance of the credit
union's systems and controls would normally be allocated to
the same individual or individuals. However, it would be possible to allocate
the overseeing function to different individuals as long as this was appropriate.
- 01/12/2004
CRED 4.2.5
See Notes
Together these tasks are known as the apportionment and oversight function.
- 01/12/2004
CRED 4.2.6
See Notes
An individual to whom a function is allocated
under SYSC 2.1.3 R will be performing the apportionment and oversight function (see CRED
6.3.8 G) and an application must be made to the FSA for approval of the
individual before the function is performed (see CRED 13.7).
- 01/12/2004
CRED 4.2.7
See Notes
CRED 2.1.4 requires that the apportionment and oversight function must be allocated to the credit union's chief executive where there is one. 'Chief executive' in this context means an employee who alone, or jointly with others, is responsible under the immediate authority of the committee of management for the conduct of the whole business of the credit union. In smaller credit unions, this would include any manager or person who is entrusted with the whole of the day to day running of the credit union even if the title 'chief executive' is not used.
- 01/12/2004
CRED 4.2.8
See Notes
The apportionment
and oversight function may be allocated to one or more members
of the credit union's committee
of management in addition to the chief
executive, or where there is no chief executive (see also CRED 4.3.17 G).
- 01/12/2004
CRED 4.2.9
See Notes
The allocation of the apportionment and oversight function to one
or two individuals is likely to be appropriate for most firms, including many credit unions. However, it would be possible
to allocate the function to every member of the credit union's committee of management as
long as that allocation remained appropriate.
- 01/12/2004
CRED 4.2.10
See Notes
If the allocation is to more than one person they may perform
the apportionment and oversight
function, or aspects of the function, separately. So, for example,
one individual may have specific responsibility for the apportionment of responsibilities,
whilst somebody else may have specific responsibility for overseeing the establishment
and maintenance of the credit
union's systems of control.
- 01/12/2004
CRED 4.2.11
See Notes
Under SYSC
2.2.1 R, all credit unions are required
to maintain a record of the arrangements they have made to satisfy the requirements
to apportion significant responsibilities and allocate the apportionment and oversight function. Where
responsibilities have been allocated to more than one person, the record will need to show clearly
how those responsibilities are shared or divided. These records must be retained
for six years after being replaced by a more up-to-date record.
- 01/12/2004
CRED 4.2.12
See Notes
Most credit unions should be able to comply with
the requirements of SYSC
2.2.1 R by means of records
they already keep for their own purposes (for example, job descriptions, organisation
charts, committee constitutions and terms of reference).
- 01/12/2004
CRED 4.3
Systems and Controls
- 01/12/2004
General
CRED 4.3.1
See Notes
SYSC 3.1.1 R
requires
that every firm,
including a credit union,
takes reasonable care to establish and maintain such systems and controls
as are appropriate to its business.
CRED 4.3.2
See Notes
SYSC 3.1.1 R
is a high
level rule which
allows firms to
put in place the systems and controls that are appropriate and effective for
their particular circumstances. What is appropriate for a particular credit union will depend
upon such matters as the nature, scale, and complexity of its business, the
volume and size of its transactions,
and the level of risk associated with its operations.
CRED 4.3.3
See Notes
A small version 1 credit union will not be expected
to have the same systems and controls as a large version 2 credit union.
- 01/12/2004
CRED 4.3.4
See Notes
SYSC 3.2
deals with
the areas to be covered by systems and controls. Guidance on how this applies to credit unions is provided
below.
Rules and evidential provisions
CRED 4.3.5
See Notes
A credit
union must establish, maintain and implement an up-to-date business
plan approved by the committee of management and supply a copy on request
to the FSA.
- 01/12/2004
CRED 4.3.6
See Notes
- 01/12/2004
CRED 4.3.7
See Notes
A credit
union must establish, maintain, and implement an up to date
and fully documented policies and procedures manual, and supply a copy on
request to the FSA.
- 01/12/2004
CRED 4.3.8
See Notes
- 01/12/2004
CRED 4.3.9
See Notes
A credit
union must establish, maintain and implement a fully documented
system of control.
- 01/12/2004
CRED 4.3.10
See Notes
- 01/12/2004
CRED 4.3.11
See Notes
- (1) A credit union should have an internal audit function (this may be either in house or outsourced to a third party).
- (2) Contravention of CRED 4.3.11 E (1)) may be relied on as tending to establish contravention of SYSC 3.1.1 R (see CRED 4.3.1 G).
CRED 4.3.12
See Notes
The term 'internal audit function' in CRED 4.3.11 E refers to the generally
understood concept of internal audit within a firm, that is, the function of assessing
adherence to and the effectiveness of internal systems and controls, procedures
and policies. The
internal audit function is not a controlled
function itself, but is part of the systems and controls function (CF28).
Guidance on internal audit is given in CRED 4.3.50 G.-.
CRED 4.3.60 G.
CRED 4.3.13
See Notes
- (1) A credit union should ensure appropriate segregation of duties in order to minimise the risk of financial crime or contravention of requirements and standards under the regulatory system.
- (2) Contravention of CRED 4.3.13 E (1) may be relied on as tending to establish contravention of SYSC 3.1.3 G.
- 01/12/2004
CRED 4.3.14
See Notes
Committee of management
CRED 4.3.15
See Notes
Under Schedule 1 to the Credit Unions
Act 1979, a credit union is
required to have a committee of management. The committee of management should
be competent to control the affairs of a credit
union, and have an appropriate range of skills and experience
having regard to the activities carried on by the credit union.
- 01/12/2004
CRED 4.3.16
See Notes
CRED 6.2 provides additional guidance for credit unions on the Statements of Principle for Approved Persons (see also APER 2.1.2 P). In accordance with Statement of Principle 7, it is the responsibility of each individual member of the committee of management to understand, and ensure that the credit union complies with, the requirements of all the relevant Acts, secondary legislation, and rules.
- 01/12/2004
CRED 4.3.17
See Notes
As the credit union's governing body, the committee of management has responsibility for ensuring that the credit union complies with the requirements of SYSC 3.1.1 R (see CRED 4.3.1 G CRED 4.3.2 G). Accordingly, the committee of management has overall responsibility for the following matters:
- (1) to establish objectives and formulate a business plan;
- (2) to monitor the financial position of the credit union;
- (3) to determine and document policies and procedures;
- (4) to direct and coordinate the work of all employees and volunteers, and ensure that they are capable and properly trained;
- (5) to maintain adequate reserves;
- (6) to make provision for bad and doubtful debts;
- (7) to recommend a dividend on shares to members subject to the credit union's financial position;
- (8) to ensure that the credit union complies with all statutory and regulatory requirements;
- (9) to ensure that the credit union complies with the requirements of its registered rules.
Where a committee of management has responsibility for these matters on a day to day basis (that is, they are not delegated to a chief executive or manager) it seems highly likely that each member of the committee would be performing the apportionment and oversight function, and would therefore require individual approval.
CRED 4.3.18
See Notes
The committee of management should meet
at least monthly.
- 01/12/2004
Organisation
CRED 4.3.19
See Notes
CRED 4.3.20
See Notes
A credit
union should have clearly defined organisational arrangements
and procedures. These arrangements and procedures should be properly documented.
- 01/12/2004
CRED 4.3.21
See Notes
Those credit unions that do not have a permanent
place of business or permanent full-time staff should take particular care
to ensure that their organisational arrangements are robust and clear.
- 01/12/2004
CRED 4.3.22
See Notes
The delegation of functions and tasks
should take place within an appropriate framework. This should distinguish
between those decisions reserved for the committee of management and those
delegated to sub-committees, volunteers or employees.
- 01/12/2004
CRED 4.3.23
See Notes
There should be arrangements to supervise
delegation. This should include establishing appropriate reporting mechanisms
and procedures for monitoring.
- 01/12/2004
CRED 4.3.24
See Notes
Reporting lines should be clear and appropriate
having regard to the nature, scale, and complexity of the credit union and its business.
- 01/12/2004
CRED 4.3.25
See Notes
SYSC 3.2.4 G
specifically
covers the issue of outsourcing. Guidance relevant
to delegation within a credit
union is also relevant to external delegation ("outsourcing").
A credit union cannot
contract out its regulatory obligations, and remains ultimately responsible
for any activities or functions that are outsourced. A credit union should therefore take reasonable
care to supervise any outsourced activities, and obtain sufficient information
to be able to assess the impact of outsourcing on its systems and controls.
CRED 4.3.26
See Notes
CRED 4.3.13 E states
that all credit unions should
ensure appropriate segregation of duties. Duties should be segregated to prevent
one individual from initiating, controlling, and processing a transaction
(for example, approval and payment of an invoice).
- 01/12/2004
CRED 4.3.27
See Notes
Responsibilities of connected persons (for example,
relatives and other close relationships) should be kept entirely separate.
Such persons should
not hold key posts at the same time. Where this is unavoidable, a credit union should have
a written policy for ensuring complete segregation of duties and responsibilities.
- 01/12/2004
Documentation of systems of control
CRED 4.3.28
See Notes
CRED 4.3.9 R requires
a credit union's system
of control to be fully documented. The documentation helps the committee of
management to assess if systems are maintained and controls are operating
effectively. It also helps those reviewing the systems to ensure that the
controls are those that have been authorised, and that they are adequate for
their purpose.
- 01/12/2004
CRED 4.3.29
See Notes
The committee of management should determine the form of documentation to be adopted. Considerations should include the following:
- (1) It should be comprehensive. It should cover all material aspects of the operations of the credit union.
- (2) It should be integrated. Separate elements of the system should be cross referred so that the system can be viewed as a whole.
- (3) It should identify risks, and the controls established to manage those risks. The controls should be identified and their purpose defined so that their effectiveness can be evaluated.
- (4) There should be named persons or posts for each control function, and alternatives in case of absence.
- (5) It should state how the operation of the control is evidenced. Evidence might include signatures, records and registers, retention of control documents.
- (6) It should be unambiguous. Instructions should be clear and precise, avoiding expressions such as "normally" and "if possible".
- (7) It should be practical. The separate elements should have a practical role in the review and improvement of systems.
- (8) It should be up to date. There should be an accurate description of the function that the control is to address. When changes are made to the function, the appropriate systems of control need to be updated and documented at the same time.
- (9) The committee of management should, from time to time, seek confirmation that the systems of control are being complied with.
- 01/12/2004
CRED 4.3.30
See Notes
Documentation should not be restricted to "lower level" controls applied in processing transactions, but should also cover "high level" controls including:
- (1) powers to be exercised only by the committee of management, and powers delegated to others;
- (2) the purpose, composition and reporting lines of sub-committees, and senior managers to whom responsibilities are delegated;
- (3) the specific roles and responsibilities of individual officers;
- (4) the timing, form and purpose of meetings of the committee of management and sub-committees, and the way in which policies and decisions are recorded and their implementation monitored.
- 01/12/2004
CRED 4.3.31
See Notes
The documentation of IT controls should
be integrated within the overall documentation of a credit union's system of control.
- 01/12/2004
Accounting records and systems
CRED 4.3.32
See Notes
SYSC 3.2.20 R
requires that a credit union takes reasonable
care to make and retain adequate records of all matters governed by the Act, secondary legislation
under the Act,
or rules (including
accounting records). These records must be capable of being reproduced in
the English language and on paper.
CRED 4.3.33
See Notes
A credit
union should have appropriate systems in place to fulfil its
obligations with respect to adequacy, access, periods of retention, and security
of records.
- 01/12/2004
CRED 4.3.34
See Notes
The main reasons why a credit union should maintain adequate accounting and other records are:
- (1) to provide the committee of management with adequate financial and other information to enable them to conduct its business in a prudent manner on a day-to-day basis;
- (2) to safeguard the assets of the credit union and the interests of members and persons too young to be members (see CRED 7.3.2 G);
- (3) to assist officers of the credit union to fulfil their regulatory and statutory duties in relation to the preparation of annual accounts;
- (4) to provide the committee of management with sufficient timely and accurate information to assist them to submit the information required or requested by the FSA.
- 01/12/2004
CRED 4.3.35
See Notes
When forming their opinion of whether the accounting and other records are adequate, the committee of management should satisfy themselves that they capture and record on a timely basis, and in an orderly fashion, every transaction. They should provide sufficient information in respect of each transaction to explain:
- (1) its nature and purpose;
- (2) the asset or liability, actual and contingent, which arises (or may arise) from it;
- (3) the income or expenditure, current and deferred, which arises from it.
- 01/12/2004
CRED 4.3.36
See Notes
The committee of management must be satisfied
that the records are maintained in an integrated and orderly manner to disclose,
with reasonable accuracy and promptness, the state of the business at any
time.
- 01/12/2004
Systems and controls in relation to compliance and financial crime
CRED 4.3.37
See Notes
SYSC 3.2.6 R
requires
all credit unions to
take reasonable care to establish and maintain effective systems and controls
for compliance with all regulatory requirements (in other words, the relevant
Acts, secondary legislation, and rules)
and for countering the risk of financial
crime.
CRED 4.3.37A
See Notes
SYSC 3.2.6A R and requires a credit union to ensure that these systems and controls:
- (1) enable it to identify, assess, monitor and manage money laundering risk; and
- (2) are comprehensive and proportionate to the nature, scale and complexity of that credit union's activities.
CRED 4.3.37B
See Notes
'Money laundering risk'
is the risk that a credit
union may be used to further money laundering. Failure by a credit union to manage
this risk effectively will increase the risk to society of crime and terrorism.
- 01/03/2006
CRED 4.3.37C
See Notes
SYSC
3.2.6C R
requires
a credit union to
carry out regular assessments of the adequacy of these systems and controls
to ensure that they continue to meet this requirement.
CRED 4.3.37D
See Notes
A credit union may also
have separate obligations to comply with relevant legal requirements, including
the Terrorism Act 2000, the Proceeds of Crime Act 2002 and the Money Laundering Regulations.
SYSC 3.2.6 R to 3.2.6J G are not relevant
guidance for the purposes of regulation 3(3) of the Money Laundering Regulations, section 330(8)
of the Proceeds of Crime Act 2002 or section 21A(6) of the Terrorism Act 2000.
CRED 4.3.37E
See Notes
The FSA, when considering
whether a breach of its rules on
systems and controls against money
laundering has occurred, will have regard to whether a credit union has followed
relevant provisions in guidance for the UK financial
sector issued by the Joint Money Laundering Steering Group.
- 01/03/2006
CRED 4.3.37F
See Notes
In identifying its money laundering risk and in establishing the nature of these systems and controls, a credit union should consider a range of factors, including:
- (1) its customer, product and activity profile;
- (2) its distribution channels;
- (3) the complexity and volume of its transactions;
- (4) its processes and systems; and
- (5) its operating environment.
- 01/03/2006
CRED 4.3.37G
See Notes
A credit union should ensure that these systems and controls include:
- (1) appropriate training for that credit union's employees in relation to money laundering;
- (2) appropriate provision of information to that credit union's governing body and senior management, including a report at least annually by that credit union's money laundering reporting officer on the operation and effectiveness of those systems and controls;
- (3) appropriate documentation of that credit union's risk management policies and risk profile in relation to money laundering, including documentation of that credit union's application of those policies (see SYSC 3.2.20 R to SYSC 3.2.22 G );
- (4) appropriate measures to ensure that money laundering risk is taken into account in the day-to-day operation of that credit union, including in relation to:
- (a) the development of new products;
- (b) the taking-on of new customers; and
- (c) changes in its business profile; and
- (5) appropriate measures to ensure that procedures for identification of new customers do not unreasonably deny access to that credit union's services to potential customers who cannot reasonably be expected to produce detailed evidence of identity.
CRED 4.3.37H
See Notes
SYSC
3.2.6H R
requires a credit union to allocate to a director or senior manager (who may
also be the money laundering
reporting officer) overall responsibility within the credit union for the establishment
and maintenance of effective anti-money
laundering systems and controls.
The money laundering reporting officer
CRED 4.3.37I
See Notes
SYSC 3.2.6I R requires a credit union to:
- (1) appoint a money laundering reporting officer, who shall be responsible for oversight of that credit union's compliance with the FSA's rules on systems and controls against money laundering; and
- (2) ensure that its money laundering reporting officer has a level of authority and independence within that credit union and access to resources and information sufficient to enable him to carry out that responsibility.
CRED 4.3.37J
See Notes
The job of the money laundering reporting officer within a credit union is to act as the focal point for all activity within that credit union relating to anti-money laundering. The FSA expects that a credit union's money laundering reporting officer will be based in the United Kingdom.
- 01/03/2006
The compliance function
CRED 4.3.37K
See Notes
Depending
on the nature, scale and complexity of its business, it may be appropriate
for a credit union to
have a separate compliance function. The organisation and responsibilities
of a compliance function should be documented. A compliance function should
be staffed by an appropriate number of competent staff who are sufficiently
independent to perform their duties objectively. It should be adequately resourced
and should have unrestricted access to the credit union's relevant records as well as
ultimate recourse to its governing
body.
- 01/03/2006
CRED 4.3.38
See Notes
CRED 4.3.39
See Notes
SYSC 3.2.8 R is unlikely to
be relevant to a credit
union as it is relevant only to firms carrying on designated investment business.
- 01/12/2004
CRED 4.3.40
See Notes
Some important compliance issues include:
- (1) insurance against fraud and dishonesty;
- (2) arrangements for the prevention, detection and reporting of money laundering;
- (3) establishing and maintaining a satisfactory system of control;
- (4) keeping proper books of account;
- (5) computation and application of profits;
- (6) investment of surplus funds;
- (7) capital requirements;
- (8) liquidity requirements;
- (9) limits on shares and loans;
- (10) maintenance of membership records;
- (11) submission of financial reports to the regulator;
- (12) approved persons regime;
- (13) payment of regulatory fees.
- 01/12/2004
Management information
CRED 4.3.41
See Notes
CRED 4.3.42
See Notes
A credit
union should maintain information systems to enable the committee
of management to direct and control the credit
union's business effectively, and to provide the information
required by the FSA.
- 01/12/2004
CRED 4.3.43
See Notes
The committee of management should be satisfied that:
- (1) the information available is sufficient for the proper assessment of the potential risks for the credit union, and in order to determine its need for capital and liquidity;
- (2) the information available is sufficiently comprehensive to provide a clear statement of the performance and financial position of the credit union;
- (3) management information reports are prepared with sufficient frequency;
- (4) sufficient attention is focused on key factors affecting income and expenditure and that appropriate performance indicators are employed;
- (5) actual performance is compared with planned and prior performance.
- 01/12/2004
CRED 4.3.44
See Notes
In forming a view on whether the management information system is sufficiently comprehensive, the committee of management should consider whether, where relevant, the substance of reports provides a clear statement of:
- (1) the capital position;
- (2) the liquidity position;
- (3) profits and losses, assets and liabilities, and flow of funds;
- (4) loans, arrears, and provisions.
- 01/12/2004
CRED 4.3.45
See Notes
The matters listed in CRED 4.3.44 G should be compared against limits, ratios and
other parameters set by the committee of management, as well as regulatory
requirements.
- 01/12/2004
Information for the FSA
CRED 4.3.46
See Notes
Information reported to the FSA should be accurate
and timely. Credit unions are
required to complete returns as set out in CRED 14.10,
and submit them within the specified timetable. Returns should be reviewed
prior to their submission to the FSA at
a sufficiently senior level. The review should check for consistency between
different returns, between various tables on the same return, and between
information prepared for the committee of management.
- 01/12/2004
Personnel
CRED 4.3.47
See Notes
CRED 4.3.48
See Notes
A credit
union should identify present and future staffing requirements
(including volunteers and paid staff) and make appropriate plans for their
recruitment and training.
- 01/12/2004
CRED 4.3.49
See Notes
A credit
union should have appropriate systems and controls in place
to satisfy itself as to the suitability of its staff, including the competence
and honesty of such staff. Any assessment of suitability should take into
account the nature of the position and the level of responsibility that the
individual would hold.
- 01/12/2004
Internal Audit
CRED 4.3.50
See Notes
CRED 4.3.11 E states
that a credit union should have
an internal audit function (see also CRED 4.3.12 G).
CRED 4.3.51
See Notes
Guidance on internal audit and audit committees (otherwise known as the supervisory committee) is located in SYSC 3.2.15 G - SYSC 3.2.16 G.
CRED 4.3.52
See Notes
Depending upon the scale and nature of
the credit union's activities,
it may be appropriate for the audit committee to delegate the task of monitoring
the effectiveness and appropriateness of its systems and controls to an employee or other third
party.
- 01/12/2004
CRED 4.3.53
See Notes
The purposes of an internal audit are:
- (1) to ensure that the policies and procedures of the credit union are followed;
- (2) to provide the committee of management with a continuous appraisal of the overall effectiveness of the control systems, including proposed changes;
- (3) to recommend improvements where desirable or necessary;
- (4) to determine whether the internal controls established by the committee of management are being maintained properly and operated as laid down in the policy, and comply with relevant Acts, secondary legislation, rules, policies and procedures;
- (5) to ensure that accounting records are prepared promptly and accurately, and that they are in order;
- (6) to assess whether financial and operating information supplied to the committee of management is accurate, pertinent, timely, and complete.
- 01/12/2004
CRED 4.3.54
See Notes
The internal audit
function (see CRED 4.3.12 G) should develop an
audit plan, covering all aspects of the credit
union's business. The audit plan should identify the scope and
frequency of work to be carried out in each area. Areas identified as higher
risk should be covered more frequently. However, over a set time frame (likely
to be one year) all areas should be covered. Care should be taken to avoid
obvious patterns of checking.
CRED 4.3.55
See Notes
The internal audit work programme should include items such as:
- (1) verification of cash (counting and reconciliation) without prior notification;
- (2) bank reconciliation (checking records against bank statements);
- (3) verification of passbooks or account statements;
- (4) checking for compliance with policies and procedures;
- (5) checking for compliance with relevant Acts, secondary legislation and rules;
- (6) checking minutes and reports of the committee of management and other sub-committees for compliance, and assessing regularity and completeness;
- (7) checking loan applications;
- (8) verification of the credit union's assets and investments.
- 01/12/2004
CRED 4.3.56
See Notes
The key elements of a satisfactory system of internal audit include the following:
- (1) Terms of reference. These should be specified with precision and include, amongst other things, scope and objectives of the audit committee and the internal audit function (see CRED 4.3.12 G), access to records, powers to obtain information and explanations for officers, and reporting requirements. These should be approved by the committee of management.
- (2) Risk analysis. Key risks in each area of the credit union's business should be identified. The adequacy of the specific controls put in place to address those risks should be assessed.
- (3) Internal audit plan. This should be developed on the basis of the risk analysis.
- (4) Detailed programmes. These should be based on the internal audit plan, together with the controls and their objectives specified in the control documentation. Each programme should be comprehensive, specifying the frequency with which the various parts of the programme are to be carried out and how the work is to be performed.
- (5) Working papers. These should be maintained to evidence who performed the work, how it was controlled and supervised, and to record the conclusions reached. They should be cross referenced to reports made and action taken.
- (6) System of reporting. Formal reports should be submitted at the completion of each aspect of programmed work, stating the areas covered together with any recommendations and conclusions reached.
CRED 4.3.57
See Notes
The internal audit
function (see CRED 4.3.12 G) should be independent
of all of the functions it inspects.
CRED 4.3.58
See Notes
The committee of management should be
satisfied that the status and reporting relationship of the chair of the audit
committee is sufficient to maintain the independence and objectivity of the
function.
- 01/12/2004
CRED 4.3.59
See Notes
The qualifications, experience and training
of individuals performing the internal audit
function (see CRED 4.3.12 G) should be adequate
in relation to its objectives.
CRED 4.3.60
See Notes
The committee of management should be satisfied that the internal audit function (see CRED 4.3.12 G) is being properly carried out. In order to review the overall effectiveness of the internal audit function it should consider the following:
- (1) the adequacy and scope of planning;
- (2) the adequacy and scope of work performed in relation to the plans and programmes;
- (3) the regularity and level of reporting on matters arising from the inspections;
- (4) the disposal of points and recommendations raised, and reasons for the rejection of any major points;
- (5) a review of the overall effectiveness of the internal audit function.
Business planning
CRED 4.3.61
See Notes
CRED 4.3.5 R requires
that a credit union maintains
a current business plan.
- 01/12/2004
CRED 4.3.62
See Notes
Version
2 credit unions should submit a copy of their business plan
to the FSA.
A version 2 credit union making
any significant changes to the business plan should provide the FSA with a copy of the
amended plan as soon as possible after it has been adopted.
- 01/12/2004
CRED 4.3.63
See Notes
Guidance on
business strategy is located in SYSC 3.2.17 G.
CRED 4.3.64
See Notes
The committee of management should have
a satisfactory planning system to provide a framework for growth and development
of the credit union, and to enable
it to identify, measure, manage and control risks of regulatory concern.
- 01/12/2004
CRED 4.3.65
See Notes
The business plan should cover a period
of three years from the current financial year, that is to say, the remainder of the
current financial year and the two following financial years.
CRED 4.3.66
See Notes
The planning system should be defined
clearly, documented appropriately, and planning related tasks and decision
making responsibilities allocated clearly within the credit union.
- 01/12/2004
CRED 4.3.67
See Notes
The conclusions, recommendations, projections
and assumptions set out in the business plan should be supported by analysis,
based on adequate data, and properly documented for comparison with actuals.
- 01/12/2004
CRED 4.3.68
See Notes
The committee of management should consider
the range of possible outcomes in relation to various risks. These risks are increased when a credit union provides
ancillary services like issuing and administering means of payment and money
transmission, which result, in particular, in higher liquidity and operational
risks.
- 01/12/2004
Documentation of policies and procedures
CRED 4.3.69
See Notes
CRED 4.3.7 R requires
that a credit union maintains
a manual of its policies and procedures.
- 01/12/2004
CRED 4.3.70
See Notes
Version
2 credit unions should submit a copy of their policy and procedures
manual to the FSA.
A version 2 credit union making
any significant changes to their policies or procedures should provide the FSA with a copy of the
amended manual as soon as possible after it has been adopted.
- 01/12/2004
CRED 4.3.71
See Notes
The policy and procedures manual should cover all aspects of the credit union's operations, including matters such as:
- (1) cash handling and disbursements;
- (2) collection procedures;
- (3) lending - including large exposures (see CRED 10.1 - CRED 10.5);
- (4) arrears management (see CRED 10.2.8 G - CRED 10.2.9 G);
- (5) provisioning (see CRED 10.5);
- (6) liquidity management (see CRED 9);
- (7) financial risk management (see CRED 7);
- (8) money laundering prevention (see CRED 4.3.37 G and SYSC 3.2);
- (9) internal audit (see CRED 4.3.50 G - CRED 4.3.60 G);
- (10) information technology (see CRED 4.3.31 G);
- (11) business continuity - otherwise known as disaster recovery (see CRED 4.3.72 G - CRED 4.3.74 G);
- (12) marketing;
- (13) training;
- (14) connected persons and managing conflicts of interest (see CRED 4.3.27 G);
- (15) complaints handling (see CRED 17).
Business continuity
CRED 4.3.72
See Notes
Guidance on
business continuity is located in
SYSC 3.2.19 G.
CRED 4.3.73
See Notes
A credit
union should put in place contingency arrangements to ensure
that it could continue to operate and meet its regulatory requirements in
the event of an unforeseen interruption that may otherwise prevent the credit union from operating
normally. (For example, if there was a complete failure of IT systems or if
the premises were destroyed by fire).
- 01/12/2004
CRED 4.3.74
See Notes
Business continuity arrangements should
be reviewed and tested regularly in order to ensure their effectiveness.
- 01/12/2004
CRED 5
Threshold conditions
CRED 5.1
Application and purpose
- 01/12/2004
CRED 5.1.1
See Notes
This
chapter applies to all credit
unions. It also applies to any person seeking to become authorised as a credit union.
- 01/12/2004
CRED 5.1.2
See Notes
The purpose of this chapter is to provide
additional guidance to credit unions on the
basic requirements that all credit
unions must meet if they are to be allowed to carry on a regulated activity.
- 01/12/2004
CRED 5.1.3
See Notes
Schedule 6 to the Act sets out the threshold conditions for authorisation. COND contains guidance for all firms on the threshold conditions.
- 01/12/2004
CRED 5.1.4
See Notes
- 01/12/2004
CRED 5.1.5
See Notes
The threshold
conditions must be met on a continuing basis by credit unions. Failure
to meet one of the conditions is sufficient grounds for the exercise by the FSA of its powers (see EG).
- 28/08/2007
- Past version of CRED 5.1.5 before 28/08/2007
CRED 5.2
The Conditions
- 01/12/2004
CRED 5.2.1
See Notes
Schedule 6 to the Act and COND set out the threshold conditions in full. They are:
- (1) Threshold condition 1: Legal status. This sets out a number of conditions for legal form. A credit union by definition will comply.
- (2) Threshold condition 2: Location of offices. A regulated UK credit union must have its head office and registered office in the United Kingdom. This general requirement in the Act is aimed at ensuring that firms are organised in a way that can be effectively supervised. The Credit Unions Act 1979 applies a specific requirement: the registered office of a credit union has to be in Great Britain; Northern Ireland credit unions are covered by separate legislation. (See CRED 1.1.1 G(2) for the definition of the italicised term credit union).
- (3) Threshold condition 3: Close links. This condition requires the FSA to be satisfied that it can effectively supervise a firm, taking into account the structure of the group to which it belongs or the other firms to which it has close links. This will have little relevance to credit unions because of the way they are constituted.
- (4) Threshold condition 4: Adequate resources. The adequate resources condition has a wide meaning. The FSA will interpret the term 'adequate' as meaning sufficient in terms of quantity, quality and availability, and 'resources' as including all financial resources, non-financial resources and means of managing its resources; for example, capital, provisions against liabilities, liquidity and human resources. Detailed financial resources and systems requirements for credit unions can be found in CRED 4, CRED 8, and CRED 9. The FSA will consider whether a credit union is ready, willing and organised to comply with these requirements when assessing if it has adequate resources for the purposes of this threshold condition.
- (5) Threshold condition 5: Suitability. Essentially, this condition requires the FSA to be satisfied that a credit union is 'fit and proper' to be authorised and permitted to carry on the relevant activities. It will therefore have regard to all relevant matters. These will include whether there are any indications that the credit union will not be able to meet its debts as they fall due, and whether the credit union has taken reasonable steps to identify and measure any risks of regulatory concern. It will also include the credit union's connection with any person.
- 01/12/2004
CRED 5.2.2
See Notes
The first two threshold conditions prescribe objective
criteria to be satisfied there is no room for judgment on the part of the FSA. Threshold condition 4 and threshold condition 5 set new formal conditions
for credit unions.
In both cases, what is required will depend upon such matters as the size
of the credit union and
the activities it wishes to carry on.
- 01/12/2004
CRED 5.2.3
See Notes
Where a credit union may no longer meet the threshold conditions (see EG) the FSA will make further enquiries. This might include the provision of a report by a skilled person or the FSA exercising its formal enforcement powers. In any situation where the FSA may need to consider the use of its powers as a result of the failure of a credit union to meet one of these conditions, the FSA will have regard to the principles underlying the FSA's approach to the use of these powers. These principles include transparency, proportionality and consistency.
- 28/08/2007
- Past version of CRED 5.2.3 before 28/08/2007
CRED 5.2.4
See Notes
The FSA has
the power to vary a credit
union's Part
IV permission on its own initiative, if it appears to the FSA that the credit union is failing, or is likely to
fail, to satisfy the threshold
conditions (see
EG
).
- 28/08/2007
- Past version of CRED 5.2.4 before 28/08/2007
CRED 6
The Approved persons regime
CRED 6.1
Application and purpose
- 01/12/2004
CRED 6.1.1
See Notes
This
chapter applies to all credit
unions and approved
persons. It also applies to applicants seeking to become authorised as a credit union.
- 01/12/2004
CRED 6.1.2
See Notes
The purpose of this chapter is to provide guidance on the provisions
concerning approved persons as
they relate to credit unions.
- 01/12/2004
CRED 6.1.3
See Notes
- 06/10/2007
- Past version of CRED 6.1.3 before 06/10/2007
CRED 6.1.4
See Notes
Guidance on all the provisions of the manuals concerning approved persons is provided below, but the following points summarise the key parts of the proposals:
- (1) FSA has specified various functions which are seen as key to the operation of a credit union and which are referred to as controlled functions.
- (2) A controlled function may be performed only by a person who is a fit and proper person to perform the function to which the approval relates.
- (3) The purpose of these provisions is to complement the regulation of credit unions themselves.
- (4) The manuals provide full details concerning all aspects of the application process, the criteria for assessment, the range of controlled functions and disciplinary action.
- 01/12/2004
CRED 6.2
The Statements of Principle of Code of Practice for Approved Persons (APER)
- 01/12/2004
CRED 6.2.1
See Notes
The purpose of this section is to provide
a guide to the Statements
of Principle and Code
of Practice for Approved Persons (APER) which are issued for the guidance of approved persons in the
conduct of their functions and follows the structure of the statements and
code.
- 01/12/2004
Introduction
CRED 6.2.2
See Notes
- 01/12/2004
CRED 6.2.3
See Notes
APER 1.2 explains that section
64(2) of the Act provides
that if the FSA issues Statements of Principles it
must also issue a code of practice for the purpose of helping to determine
whether a person's conduct
complies with these Statements
of Principle. The code has been issued for that purpose. It
also sets out some guiding principles concerning the application of the Statements of Principle and
the Code of Practice for
Approved Persons. Statements
of Principle 1, 2, 3 and 4 apply to all approved persons performing a controlled function for
a credit union,
and Statements of Principle 5,
6, and 7 apply to those approved to perform significant influence functions. All controlled functions performed
for a credit union are significant influence functions (APER
1.2.4 G).
- 01/12/2004
The Statements of Principle
CRED 6.2.4
See Notes
APER 2.1 sets out the seven Statements of Principle which apply to approved persons. These are all designed to ensure that approved persons undertake their roles efficiently and with integrity. All seven Principles may apply to approved persons performing functions for credit unions.
- 01/12/2004
CRED 6.2.5
See Notes
The table in APER 2.1.2 P sets out the full text of the Statements of Principle. These are repeated below for ease of reference.
- (1) An approved person must act with integrity in carrying out his controlled function.
- (2) An approved person must act with due skill, care and diligence in carrying out his controlled function.
- (3) An approved person must observe proper standards of market conduct in carrying out his controlled function.
- (4) An approved person must deal with the FSA and with other regulators in an open and cooperative way and must disclose appropriately any information of which the FSA would reasonably expect notice.
- (5) An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function is organised so that it can be controlled effectively.
- (6) An approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function.
- (7) An approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the regulatory requirements imposed on that business.
- 01/12/2004
Code of Practice for Approved persons
CRED 6.2.6
See Notes
APER 3.1 provides an introduction to the Code of Practice for Approved Persons and provides guidance on its operation. The key points for those involved with credit unions are as follows:
- (1) An approved person will be in breach of a Statement of Principle only where his conduct was deliberate or where his standard of conduct was below that which would be reasonable in the circumstances.
- (2) All the Statements of Principle may apply to approved persons performing a controlled function for a credit union.
- 01/12/2004
Factors relevant to Statements of Principle
CRED 6.2.7
See Notes
APER 3.2 - APER 3.3 set out factors to be taken into account in determining whether
or not an approved person's conduct
complies with the Statements
of Principle. Since all controlled
functions relevant to credit
unions are significant
influence functions, all these factors are relevant to credit unions.
- 01/12/2004
CRED 6.2.8
See Notes
APER 4.1
APER 4.7 set out the seven Statements
of Principle in turn, and provide guidance on conduct which, in the opinion
of the FSA,
does not comply with each of the Statements
of Principle or, in the case of APER 4.3, conduct which will tend to show compliance with the relevant Statement of Principle.
- 01/12/2004
Enforcement procedures
CRED 6.2.9
See Notes
Details of the disciplinary measures which may be taken against approved persons are located in DEPP. Approved persons should note that disciplinary action may be taken either for their personal misconduct or for conduct which results in a credit union breaching any provisions to which it is subject.
- 28/08/2007
- Past version of CRED 6.2.9 before 28/08/2007
CRED 6.3
Approved persons
- 01/12/2004
CRED 6.3.1
See Notes
The purpose of this section is to provide
a guide to those parts of the Supervision manual (SUP) concerning approved persons as they apply to credit unions, and follows
the structure of that manual. This section should be read in conjunction with SUP
10.
- 01/12/2004
Introduction
CRED 6.3.2
See Notes
SUP 10.1.1 R - SUP 10.1.26 R provides an introduction to the application of the approved persons regime. The effect of the rules is that a credit union must apply to the FSA for the approval of one or more individuals to perform the functions which are known as controlled functions. In broadest outline these controlled functions are roles which enable an individual to exert significant influence on the conduct of the credit union's affairs. A complete list of these functions is set out in SUP 10.4.5 R, although not all of these are relevant to credit unions. This guide concentrates only on the controlled functions which are relevant for the majority of credit unions. The largest credit unions should consider whether a wider range of controlled functions is relevant to them.
- 01/12/2004
Purpose of the regime
CRED 6.3.3
See Notes
SUP 10.2 outlines
the purpose of the direct regulation of individuals which is to supplement
the regulation of credit
unions themselves. Individuals will need to be approved to undertake
tasks which are key to the operation of a credit union.
- 01/12/2004
Controlled functions
CRED 6.3.4
See Notes
SUP 10.3 provides,
in this context, that a function is a controlled
function only when it is undertaken by a credit union in relation to a regulated activity. Controlled functions fall
within two groups. The significant
influence functions describe the roles performed by the governing body and senior managers of the firm who exert a significant
influence over the regulated
activities of the firm.
The customer functions describe
the roles of individuals who deal with customers or
with the property of customers.
These customer functions do
not extend to activities in relation to accepting deposits or general insurance and therefore
will not be relevant to credit
unions with permission for accepting deposits only.
- 01/12/2004
Specification of functions
CRED 6.3.5
See Notes
SUP 10.4 specifies
all the controlled functions and
provides that its requirements apply only in relation to the performance of
the controlled functions for
which an individual is approved.
- 01/12/2004
CRED 6.3.6
See Notes
The complete list of all controlled functions is
located in SUP 10.4.5 R. Guidance on those controlled functions most
likely to be relevant to credit
unions is provided below:
- 01/12/2004
CRED 6.3.7
See Notes
SUP 10.6: the governing functions:
- (1) SUP 10.6.4 R: the Director function This is the function of acting in the capacity of a director of a credit union.
- (2) SUP 10.6.8 R: the non-executive director function It is unusual for a credit union to appoint non-executive directors as such. But this function would include membership of a credit union's supervisory committee and any other committee which scrutinises the approach of executive management, the credit union's performance, and its standards of conduct.
- (3) SUP 10.6.11 R: the chief executive function Acting in the capacity of chief executive, whether or not using that title. This role includes anyone having the responsibility, alone or jointly with one or more others, under the immediate authority of the committee of management, for the conduct of the whole of the business.
- 01/12/2004
CRED 6.3.8
See Notes
SUP 10.7: the required functions:
- (1) SUP 10.7.1 R: the apportionment and oversight function. The apportionment of responsibilities (see CRED 4.2 and SYSC 2.1.1 R). The function of dealing with apportionment of responsibilities under SYSC 2.1.1 R, and of overseeing the establishment and maintenance of systems and controls under SYSC 3.1.1 R.
- (2) SUP 10.7.13 R: the money laundering reporting function. The function of acting in the capacity of the money laundering reporting officer of a credit union.
- 01/12/2004
SUP 10.8: the systems and controls function
CRED 6.3.9
See Notes
The function of acting as an employee with responsibility for reporting to the committee of management in relation to:
- (1) its financial affairs;
- (2) setting and controlling its risk exposure; or
- (3) adherence to internal systems and controls, procedures and policies.
- 01/11/2007
- Past version of CRED 6.3.9 before 01/11/2007
CRED 6.3.9A
See Notes
Where an employee performs the systems and controls function FSA would expect the credit union to ensure that the employee had sufficient expertise and authority to perform that function effectively, for example be a director or senior manager.
CRED 6.3.10
See Notes
SUP 10.9:
the significant management
functions:
This controlled function will only apply to the credit union if the function is not being performed by a member of the committee of management and the credit union has followed the guidance in SUP 10.9.3 G.
This controlled function will only apply to the credit union if the function is not being performed by a member of the committee of management and the credit union has followed the guidance in SUP 10.9.3 G.
CRED 6.3.12
See Notes
The following are the forms that will most commonly be needed by credit unions.
| Form A | SUP 10 Annex 4 | Application to perform controlled functions under the approved person regime. |
| Form B | SUP 10 Annex 5 | Notice to withdraw an application to perform controlled functions under the approved persons regime. |
| Form C | SUP 10 Annex 6 | Notice of ceasing to perform controlled functions. |
| Form D | SUP 10 Annex 7 | Notification of changes in personal information or application details. |
| Copies of these forms may be obtained from the FSA website or from the Individual Vetting and Approval Department. | ||
- 01/12/2004
CRED 6.3.13
See Notes
SUP 10.12 outlines
procedures concerning the application for approval and withdrawing an application
for approval. Applications should be made by the credit union and not by individual applicants.
Details are provided concerning the procedure that FSA will adopt when granting or refusing
applications.
- 01/12/2004
CRED 6.3.14
See Notes
SUP 10.13 outlines
procedures concerning changes to an approved
person's details. Where changes to an approved person's role involve the person performing one
or more different controlled
functions from those for which they have been given approval,
then a new application must be made to FSA.
This will be for approval to perform the new controlled functions.
- 01/12/2004
CRED 6.3.15
See Notes
- 01/12/2004
CRED 6.4
Assessing fitness and propriety
- 01/12/2004
Purpose
CRED 6.4.1
See Notes
The purpose of this section is to set
out and describe the criteria that the FSA will
consider when assessing the fitness and propriety of a person in respect of whom an application
is being made for approval to undertake a controlled function under the approved persons regime
(SUP
10). The criteria specified here will also be used
to assess the continuing fitness and propriety of persons who have already been approved.
- 01/12/2004
Background
CRED 6.4.2
See Notes
- (1) FIT 1.2 explains that the FSA may grant an application for approval for a person to perform a controlled function only if it is satisfied that the candidate is fit and proper to perform the controlled function to which the application relates.
- (2) It also indicates that the FSA may withdraw its approval if it considers that an individual is no longer fit and proper to perform the controlled function to which the approval relates.
- 01/12/2004
Assessing fitness and propriety
CRED 6.4.3
See Notes
FIT 1.3 explains that the FSA will have regard to a range of factors when assessing the fitness and propriety of a person to perform a particular controlled function, but that the most important criteria will be the person's:
- (1) honesty, integrity and reputation;
- (2) competence and capability; and
- (3) financial soundness.
- 01/12/2004
CRED 6.4.4
See Notes
FIT 2.1-FIT 2.3 provide further details of the criteria referred to in CRED
6.4.3 G and the primary matters
which FSA will
take account in assessing them.
- 01/12/2004
CRED 7
Investment and borrowing
CRED 7.1
Application, purpose and interpretation
- 01/12/2004
CRED 7.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 7.1.2
See Notes
- (1) The rules and guidance contained in this chapter are designed to address risks that can arise from the structure of a credit union's balance sheet.
- (2) These risks include the risk that a credit union's income is not sufficiently large to cover its funding, operational and other costs, and the risk that a credit union may not be able to renew or replace wholesale funding at an affordable rate.
- 01/12/2004
CRED 7.1.3
See Notes
For the purposes of this chapter:
- (1) the maturity of a security or loan is the last or only date on which it shall be repayable by or under its terms; and
- (2) surplus funds means funds not immediately required for a credit union's accepting deposits, lending and ancillary purposes.
- 01/12/2004
CRED 7.2
Investment
- 01/12/2004
Types of investment
CRED 7.2.1
See Notes
Subject to the general limitations on its powers contained in the Credit Unions Act 1979 and to the limitations contained in CRED 7.2.2 R CRED 7.2.3 R below, a credit union may invest its surplus funds and funds serving liquidity purposes only in the following types of investment:
- (1) deposits or loans to a UK domestic firm with Part IV permission to accept deposits;
- (2) deposits or loans to an institution which is authorised in any other EEA State to accept deposits;
- (3) sterling-denominated securities issued by the government of any EEA State;
- (4) fixed-interest sterling-denominated securities guaranteed by the government of any EEA State, provided that any guarantee is unconditional in respect of the payment of both principal and interest on those securities.
- 01/12/2004
Maturity of investments
CRED 7.2.2
See Notes
Any securities invested
in, or loans made, in accordance with CRED
7.2.1 R by
a version 1 credit union must
have a maturity date of not more than 12 months from
the date on which the investment is
made.
- 01/12/2004
CRED 7.2.3
See Notes
Any securities invested
in, or loans made, in accordance with CRED
7.2.1 R by
a version 2 credit union must
have a maturity date of not more than five years from the date on which the investment is made.
- 01/12/2004
Cash in custody of officers
CRED 7.2.4
See Notes
Surplus funds not invested by a credit union in accordance with CRED 7.2.1 R CRED 7.2.3 R must be held as cash in the custody of officers of the credit union.
- 01/12/2004
Investment conditions no longer satisfied
CRED 7.2.5
See Notes
Where under CRED 7.2.1 R CRED 7.2.3 R above, a firm or another institution ceases to satisfy the conditions necessary for a credit union to invest with it or lend to it, and any funds of a credit union are with that firm or other institution, the credit union must take all practicable steps to call in and realise that loan within three months of that cessation, or, if that is not possible, as soon after the end of that period as possible.
- 01/12/2004
Transactions between credit unions
CRED 7.2.6
See Notes
- (1) A credit union may accept a loan from another credit union (section 10(1) of the Credit Unions Act 1979). However, although a credit union is a UK domestic firm with Part IV permission to accept deposits (CRED 7.2.1 R (1)), it cannot issue shares to another credit union (section 5(1) and (2) of the Credit Unions Act 1979) or otherwise accept deposits from another credit union (Section 8(1) of the Credit Unions Act 1979). UK banks and building societies may accept deposits from a credit union.
- (2) CRED 7.2.2 R - CRED 7.2.3 R apply to loans between credit unions, except for subordinated loans qualifying as capital under CRED 8.2.1 R (4)(a). (See CRED 7.2.1 R and CRED 8.2.5 R (2)).
- (3) CRED 8.2.1 R - CRED 8.2.6 G apply to subordinated loans between credit unions qualifying as capital under CRED 8.2.1 R (4)(a).
- (4) CRED 10 (Lending) (which covers loans to members) does not apply to loans between credit unions (see CRED 10.1.1 R). However, in relation to such loans, credit unions should have regard to the principles outlined in CRED 10.4.6 G and CRED 10.5 (Provisioning).
- (5) CRED 9.3.7 R(2) applies to loans between credit unions in relation to liquidity.
- 01/12/2004
CRED 7.2.7
See Notes
Loans between credit unions should only be arranged after careful consideration by both parties. For example:
- (1) the borrower should consider the financial implications of relying on such borrowing in order to lend to members, or to finance share withdrawals; and
- (2) the lender should assess the risk of late and non-repayment arising from the borrower's own liquidity and credit risks, and keep the aggregate of its loans to other credit unions to a very modest level.
- 01/12/2004
Section 12 of the Credit Unions Act 1979
CRED 7.2.8
See Notes
Section 12 of the Credit Unions Act 1979
permits a credit union to
hold, purchase or take on lease any land for the purpose of conducting its
business, but for no other purpose, except where it holds an interest in land
as security for loans to members.
- 01/01/2006
- Past version of CRED 7.2.8 before 01/01/2006
CRED 7.2.9
See Notes
- (1) A credit union may buy or hold property as premises from which to conduct its business, but not as an investment.
- (2) A credit union may acquire premises that reasonably anticipate its future accommodation needs, or a unit (for example, the whole building, or a floor of a building) of which it requires most, but not all, and lease out the surplus area. But it may not acquire as an investment property greatly in excess of its operating requirements, with the real purpose of letting out the excess.
- (3) A credit union may purchase premises out of surplus funds, or by borrowing, or by a combination of the two, whichever is most prudent.
- (4) A credit union's premises will not count as liquid for the purposes of CRED 9.3.7 R.
- 01/01/2006
CRED 7.2A
Joint ventures
- 01/01/2006
Section 26 of the Credit Unions Act 1979
CRED 7.2A.1
See Notes
Section
26 of the Credit Unions Act 1979 prohibits a credit union from having a subsidiary within
the meaning of section 15 of the Friendly and Industrial and Provident Societies
Act 1968. To have a subsidiary in that sense, a credit union has to be a member of the company
and control the composition of its board of directors, or hold more than half
in nominal value of the company's equity share capital.
- 01/01/2006
CRED 7.2A.2
See Notes
Credit unions may set
up (and hold shares or other membership rights in) associated bodies corporate to establish
shared service facilities and other joint ventures, so long as they demonstrably
further the credit union's statutory
objects and do not breach section 26 of the Credit Unions Act 1979.
- 01/01/2006
CRED 7.3
Borrowing and Financial risk management
- 01/12/2004
Borrowing
CRED 7.3.1A
See Notes
A credit union must not
borrow from a natural person,
except by subordinated loan qualifying as capital under CRED
8.2.1 R(4).
- 01/12/2004
CRED 7.3.2A
See Notes
Although section 10 of the Credit Unions Act 1979 now permits a credit union to borrow money without restriction, CRED 7.3.1A R imposes a limitation. A credit union may borrow from a body corporate, even though it may not admit a body corporate to membership or issue it with shares. Such loans can either be subordinated loans (providing regulatory capital within CRED 8.2.1 R (1)(c)) or senior loans (providing ordinary funding, but not constituting regulatory capital). Further explanation is given at CRED 7A.1A.1 G and CRED 7A.3.2 G.
CRED 7.3.3
See Notes
The borrowing of a version 1 credit union must not exceed,
except on a short-term basis, an amount equal to 20% of the total shareholding
in the credit union.
- 01/12/2004
CRED 7.3.4
See Notes
- (1) The borrowing of a version 1 credit union should not exceed an amount equal to 20% of the total shareholding in the credit union at the end of more than two consecutive quarters.
- (2) Contravention of CRED 7.3.4 E (1) may be relied on as tending to indicate contravention of CRED 7.3.3 R.
- 01/12/2004
CRED 7.3.5
See Notes
The borrowing of a version 2 credit union must not at any time
exceed an amount equal to 50 per cent of the total shareholding in the credit union.
- 01/12/2004
CRED 7.3.6
See Notes
Subordinated debt obtained by a credit union and forming
part of its capital (see CRED
8.2.1 R) does not count
towards the borrowing limits under CRED
7.3.3 R and CRED
7.3.5 R.
- 01/12/2004
Financial risk management policy statement
CRED 7.3.7
See Notes
A version
2 credit union must establish, maintain and implement an up-to-date
financial risk management policy statement approved by the committee of management.
- 01/12/2004
CRED 7.3.8
See Notes
This policy should address both interest
rate and funding risk. It should cover aggregate limits on holdings of investments and borrowings
from sources other than members. It should deal with avoidance of funding
concentrations (both source and time-band concentrations) and should detail
the organisational arrangements, systems and controls in respect of these
matters.
- 01/12/2004
CRED 7.3.9
See Notes
A credit
union's committee of management should review and approve its
financial risk management policy at least once a year, and more frequently
if necessary, especially in light of significant changes in business.
- 01/12/2004
CRED 7.3.10
See Notes
A version
2 credit union must send to the FSA a copy of its financial risk management
policy statement as soon as is reasonably practicable after approval by the
committee of management.
- 01/12/2004
CRED 7A
Shares and deposits
CRED 7A.1
Application and purpose
- 01/12/2004
CRED 7A.1.1
See Notes
This chapter
applies to all credit unions.
- 01/12/2004
CRED 7A.1.2
See Notes
The purpose of this chapter is to provide
for limits on holdings of shares and deposits, joint accounts, dividends and
insurance cover (based on the aggregate value of shares and deposits).
- 01/12/2004
CRED 7A.1A
Members and juvenile depositors
- 01/01/2006
Sections 1 and 5 of the Credit Unions Act 1979
CRED 7A.1A.1
See Notes
In relation to membership of credit unions, the Credit Unions Act 1979 provides that:
- (1) a common bond has to exist among the members (section 1(2)(b) - see CRED 13 Annex 1A, CRED 13 Annex 1B, CRED 13 Annex 1C and CRED 13 Annex 2 G);
- (2) only individuals may be members (section 5(1)); and
- (3) a member has to hold at least one share (section 5(2)).
- 01/01/2006
CRED 7A.1A.2
See Notes
Membership of a credit union is open only to individuals acting in a private capacity and in their own right. It is not open to:
- (1) a body corporate; or
- (2) an individual acting as a representative of a body corporate or unincorporated association.
- 01/01/2006
Section 9(1) of the Credit Unions Act 1979
CRED 7A.1A.3
See Notes
Section
9(1) of the Credit Unions Act 1979 provides that a credit union may take deposits from a person
who is under the age at which he may become a member.
- 01/01/2006
CRED 7A.1A.4
See Notes
- (1) An explanation of section 9(1) of the Credit Unions Act 1979 is given at paragraph 3 of CRED 13 Annex 2 G.
- (2) The deposits referred to in CRED 7A.1A.2 G (1) are not shares and the persons who make those deposits are not members.
- 01/01/2006
CRED 7A.2
Shares
- 01/01/2006
- Past version of CRED 7A.2 before 01/01/2006
Maximum shareholdings
CRED 7A.2.1
See Notes
A credit
union must not permit a member to have or claim any interest
in the shares of the credit
union exceeding the greater of £10,000 or 1.5 per cent of the total shareholdings
in the credit union.
CRED 7A.2.2
See Notes
Where CRED
7A.2.1 R or CRED
7A.2.6 R would be breached in
relation to a member of a credit
union because of a reduction in the total shareholdings in the credit union, those rules must, in relation
to him, have effect, as respects any shares which he had, or interest which
he claimed, immediately before the reduction, as if there were added at the
end "at the time, or latest time, when he acquired shares, or an interest
in the shares of the credit
union."
- 01/12/2004
CRED 7A.2.3
See Notes
CRED
7A.2.2 R makes
it unnecessary for a member to reduce his shareholding merely because of a
reduction in the total shareholdings of the credit union.
- 01/12/2004
CRED 7A.2.4
See Notes
For the purposes of CRED
7A.2.1 R and CRED
7A.2.2 R,
the total shareholdings in a credit
union at any time must be taken to be the total shareholdings
as shown in the most recent annual return to have been sent to the FSA under SUP 16.7.62 or SUP
16.12.5 R (see CRED
14.10.7 G).
Joint accounts
CRED 7A.2.5
See Notes
Shares in a credit union must not be held in the joint
names of more than two members.
- 01/12/2004
CRED 7A.2.6
See Notes
For the purpose only of the limit in CRED
7A.2.1 R, the interest of a member
in a joint account must be treated as 50 per cent of the shareholding in that
account.
- 01/12/2004
Dividends on shares
CRED 7A.2.7
See Notes
A version 1 credit union must not:
- (1) pay different dividends on different accounts unless:
- (a) at the time of the payment of any dividends it has a capital to total assets ratio of at least 5%; and
- (b) the payment of any of those dividends does not reduce the capital to total assets ratio to below 5%; or
- (2) pay dividends out of interim profits more than once a year.
CRED 7A.2.8
See Notes
A version 2 credit union is permitted to:
- (1) pay different dividends on different accounts; and
- (2) pay dividends out of interim profits more than once a year.
- 01/12/2004
CRED 7A.3
Deposits
- 01/12/2004
CRED 7A.3.1
See Notes
- (1) A credit union must not accept deposits except:
- (a) as shares from its members who are natural persons qualifying in accordance with CRED 13 Annex 2 G Table 1G 1; or
- (b) from natural persons too young to be members under CRED 7A.3.1 R(2); or
- (c) as loans from persons under CRED 7.3.1A R - CRED 7.3.2A R.
- (2) A credit union must not accept deposits exceeding the greater of £10,000 or 1.5 per cent of the total shareholdings in the credit union from a person who is under the age at which, under section 20 of the Industrial and Provident Societies Act 1965, he may become a member of the credit union unless the deposits are held in a CTF, in which case the credit union may accept a larger deposit.
CRED 7A.3.1A
See Notes
Credit unions that provide CTFs should ensure that
under their rules depositors under the age of 18 whose deposits are held within a CTF continue to be treated as juvenile depositors
until the age of 18. This will provide for the fact that CTF account holders may not withdraw any
money from the CTF until
they reach the age of 18 in contrast to the position in relation to other deposits which become
shares and may be withdrawn earlier.
- 01/12/2004
CRED 7A.3.2
See Notes
- (1) The effect of the general prohibition in section 19 of the Act is that no person may carry on the regulated activity of accepting deposits, unless authorised or exempt.
- (2) CRED 7.3.1A R and CRED 7A.3.1 R are intended to ensure that the liberalisation of credit union borrowing (CRED 7.3.2A R) does not have the unintended effect of undermining the common bond concept (CRED 13 Annex 1 G) by allowing credit unions to operate deposit accounts for natural persons who do not qualify for membership.
- (3) Section 20 of the Industrial and Provident Societies Act 1965 provides that a person above the age of 16 may be member of a credit union, unless its rules provide to the contrary (see CRED 13 Annex 2 G Table1G3).
- (4) CRED 13 Annex 2 G Table 1G 3 gives guidance on the eligibility of natural persons too young to be members.
- (5)
- (a) A credit union is no longer required to:
- (i) hold such juvenile deposits in a fund apart from the general funds of the credit union; and
- (ii) distribute all the interest earned on the fund (after deduction of expenses) to juvenile depositors.
- (b) A credit union may make a commercial judgement on the appropriate amount of interest to pay juvenile depositors.
- (c) These changes were made by amendment of section 9 of the Credit Unions Act 1979 by Order under section 428 of the Act. (The Financial Services and Markets Act 2000 (Consequential Amendments and Transitional Provisions) (Credit Unions) Order 2002 - SI 2002 No. 1501)
- 01/12/2004
CRED 7A.4
Insurance against fraud or other dishonesty
- 01/12/2004
CRED 7A.4.1
See Notes
A credit
union must at all times maintain in force a policy of insurance
complying with CRED
7A.4.2 R.
- 01/12/2004
CRED 7A.4.2
See Notes
In order to comply with CRED 7A.4.1 R, a policy of insurance subject to the exception in CRED 7A.4.3 R:
- (1) must insure the credit union in respect of every description of loss suffered or liability incurred by reason of the fraud or other dishonesty of any of its officers or employees;
- (2) must so insure the credit union up to the limits set out in CRED 7A Annex 1 R in respect of any one claim, except that the liability of the insurer may be restricted to the amounts set out in CRED 7A Annex 1 R in respect of the total of the claims made in any one year; and
- (3) must not provide in relation to any claim for any amount greater than one per cent of the limits on any one claim set out in CRED 7A Annex 1 R to be met by the credit union.
- 01/12/2004
CRED 7A.4.3
See Notes
From the losses and liabilities against
which a policy complying with CRED
7A.4.2 R must
insure there must be excepted all loss suffered or liability incurred by a credit union other than
direct pecuniary loss discovered during the currency of the policy of insurance
or within 18 months of the date on which either the policy of insurance lapses,
or the duties of the officer or employee concerned are terminated, whichever
occurs first.
- 01/12/2004
CRED 7A.4.4
See Notes
- (1) The "aggregate value" in CRED 7A Annex 1 R comprises the shares and deposits (including those held in a CTF) referred to in CRED 7A.3.1 R (1)(a) and (b).
- (2) The tables in CRED 7A Annex 1 R set out the minimum levels of insurance cover required by a credit union. It is prudent for a credit union to consider whether additional cover:
- (a) is needed for its own particular circumstances; and
- (b) should be obtained to cater for actual or projected growth in the "aggregate value" (see paragraph 1 of CRED 7A Annex 1 R) between "relevant dates" (see paragraph 3 of CRED 7A Annex 1 R).
- 01/01/2006
CRED 7A Annex 1
Insurance against fraud or other dishonesty
- 01/12/2004
See Notes
| Column (1) Aggregate value of share subscriptions and other deposits received and not repaid (the "aggregate value") |
Column (2) Cover required in respect of any one claim |
Column (3) Cover required in respect of total claims made in any one year |
|
| Row (A) | Less than £10,000 | The higher of £500 or 50 per cent of the aggregate value | The higher of £1,000 or 100 per cent of the aggregate value |
| Row (B) | £10,000 to £100,000 | The higher of £5,000 or 20 per cent of the aggregate value | 100 per cent of the aggregate value |
| Row (C) | More than £100,000 | The higher of £20,000 or 15 per cent of the aggregate value | The higher of £100,000 or 75 per cent of the aggregate value |
| Row (D) | More than £1,000,000 | £150,000 plus 5 per cent of the aggregate value over £1,000,000, subject to a maximum of £2,000,000 | £750,000 plus 5 per cent of the aggregate value over £1,000,000, subject to a maximum of £4,000,000 |
| In relation to a credit union which, at the relevant date, has accepted and not repaid share subscriptions and other deposits of the aggregate value stipulated in column (1) of the table in this Annex, the limit in respect of any one claim is the amount appearing in the corresponding part of column (2); and the amount in respect of the total of claims made in any one year is the amount appearing in the corresponding part of column (3). |
| For the purposes of this Annex, "the relevant date" is either the date of inception or renewal of the policy of insurance, or such other date as the credit union determines, provided that the relevant date in each year subsequent to the first must be not more than one year after the relevant date in the preceding year. |
- 01/12/2004
CRED 8
Capital
CRED 8.1
Application and purpose
- 01/12/2004
CRED 8.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 8.1.2
See Notes
It amplifies Principle 4 under which a firm must maintain adequate financial resources
and the threshold condition that
a firm's resources
must be adequate in relation to the regulated
activities that it carries on.
- 01/12/2004
CRED 8.1.3
See Notes
The purpose of setting capital requirements
is to ensure that a credit
union has an appropriate level of capital available to absorb
unexpected losses.
- 01/12/2004
CRED 8.1.4
See Notes
The capital and net worth requirements
set out in this chapter represent the minimum requirements that a credit union must comply
with. A credit union should
decide for itself the amount of capital that it needs to hold over and above
these minimum standards proportionate to its scale of operations and its risk
profile.
- 01/12/2004
CRED 8.1.5
See Notes
The FSA may
require a credit union to
hold minimum amounts of capital greater than those set out below where it
considers that particular circumstances make that appropriate.
- 01/12/2004
CRED 8.2
Components of capital
- 01/12/2004
CRED 8.2.1
See Notes
- (1) The following are included in the meaning of 'capital' for the purposes of this chapter:
- (a) audited reserves;
- (b) interim net profits;
- (c) subordinated debt meeting the requirements set out at CRED 8.2.1 R (4);
- (d) initial capital; and
- (e) revaluation reserves, arising from the differences between book values and the current market values of property fixed assets:
- (i) meeting the requirements in CRED 8.2.1 R (6) to CRED 8.2.1 R (7); and
- (ii) subject to the limit in CRED 8.2.1 R (8).
- (2) Audited reserves are audited accumulated profits or losses, or both, retained by a credit union after payment of tax and dividends. Reserves also include other realised gains and gifts of capital - for example from a sponsoring organisation.
- (3) Interim net profits are interim profits net of tax and anticipated dividends.
- (4) To be included in the calculation of capital, subordinated debt must meet the following conditions:
- (a) the maturity of the loan must be more than five years from the date on which the loan is made;
- (b) the subordination provisions provide that the claims of the subordinated creditors rank behind those of all unsubordinated creditors including the credit union's shareholders;
- (c) to the fullest extent possible creditors waive their rights to set off amounts they owe the credit union against subordinated amounts owed to them by the credit union;
- (d) the only events of default are non-payment of any interest or principal under the debt agreement or the winding-up of the credit union;
- (e) the remedies available to the subordinated creditor in the event of default in respect of the subordinated debt are limited to petitioning for the winding up of the credit union or proving for and claiming in the liquidation of the credit union;
- (f) the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (d);
- (g) the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the above conditions;
- (h) the debt must be unsecured and fully paid up.
- (5) Initial capital is a credit union's capital at the time it is given Part IV permission to accept deposits, but this does not apply in cases where the credit union is treated as having such a permission on credit unions day. Initial capital consists of a credit union's assets less its liabilities other than the liabilities set out in CRED 8.2.1 R(a)-(c).
- (6) To be included in the calculation of capital, revaluation reserves must meet the following conditions:
- (a) the credit union must apply the revaluation method to all of its property fixed assets and not selectively;
- (b) the values must result from regular professional valuations of each property;
- (c) if professional valuations are not carried out annually, there must be:
- (i) a rolling programme such that no professional valuation of a property is more than five years old;
- (ii) in the intervening year(s) in which a property is not professionally valued, an interpolation of value by the Board which takes into account any decline in property values disclosed by valuations of other properties in that year;
- (d) any increase of revaluation reserve must be supported by a professional valuation.
- (7) Subject to the conditions in CRED 8.2.1 R (6), and the limit in CRED 8.2.1 R (8), the amount of revaluation reserve used for the calculation of capital must be:
- (a) the amount standing to the credit of any such reserve in the balance sheet in the most recent annual return to have been sent to the FSA under SUP 16.7.62 R or SUP 16.12.5 R (see CRED 14.10.7 G); or
- (b) the amount of any such reserve in the accounting records of the credit union, for the time being;
- whichever is the lesser amount.
- (8) The amount of revaluation reserve included in the calculation of capital must not represent more than 25 per cent of the total of capital resources in CRED 8.2.1 R (1)(a) to CRED 8.2.1 R (1)(e).
- 01/01/2008
- Past version of CRED 8.2.1 before 01/01/2008
CRED 8.2.1A
See Notes
The
effect of CRED
8.2.1 R(4)(a)
is that the shortest permissible period for a subordinated loan qualifying
as capital under CRED
8.2.1 R(4)(a)
is five years and one day.
- 01/12/2004
CRED 8.2.1B
See Notes
Subordinated
debt is due and payable only in accordance with CRED 8.2.1 R (4). However, this rule does not prevent the debt from being
issued on terms which permit the credit
union, in accordance with a board resolution, to repay the debt.
The decision to repay the debt should be genuinely at the instance of the credit union's board.
The credit union should
satisfy itself that the remaining capital would be adequate for the credit union's present,
and future foreseeable needs. The credit
union should notify the FSA at
least one month in advance of its intention to repay the debt (as indicated
in CRED 14.9.5 G (3)), thereby giving the FSA the opportunity to raise objections to
the proposed repayment. If repayment is proposed within the first five years,
the FSA is
likely to consider exercising its own-initiative
powers to ensure that the credit
union continues to satisfy the threshold conditions.
- 01/01/2006
CRED 8.2.1C
See Notes
The
effect of CRED
8.2.1 R (8) is
that no more than 25 per cent of a credit
union's regulatory capital may consist of amounts deriving from
the revaluation of property, however large the amount standing to the credit
of the credit union's revaluation
reserve.
- 01/01/2006
CRED 8.2.2
See Notes
Negative reserves and any interim net
losses must be deducted from capital.
- 01/12/2004
CRED 8.2.3
See Notes
The amount of any subordinated loan counting
towards a credit union's regulatory
capital must, over its final four years to maturity, be written down by 20%
of the amount of the loan per year. (See Table 8.2.4R.)
- 01/12/2004
CRED 8.2.4
See Notes
Writing down subordinated loans over final four years This table belongs to CRED 8.2.3 R
| Years to maturity | Amount of loan counting towards capital |
| More than 4 | 100% |
| Less than and including 4 but more than 3 | 80% |
| Less than and including 3 but more than 2 | 60% |
| Less than and including 2 but more than 1 | 40% |
| Less than and including 1 | 20% |
- 01/12/2004
CRED 8.2.5
See Notes
- (1) When a credit union makes a subordinated loan to another credit union qualifying as capital under CRED 8.2.1 R(4)(a), the full amount of the loan (not the amount counting towards the borrower's capital under CRED 8.2.4 R) must be deducted from the lender's capital.
- (2) A subordinated loan within CRED 8.2.1 R(4)(a) is not an investment under CRED 7.2.1 R.
- 01/12/2004
CRED 8.2.6
See Notes
The
effect of CRED
8.2.5 R is
that the maturity limits in CRED
7.2.2 RCRED
7.2.3 R do not apply to subordinated loans made by a credit union.
- 01/12/2004
CRED 8.3
Version 1 credit unions
- 01/12/2004
Requirement to maintain positive net worth
CRED 8.3.1
See Notes
A version
1 credit union must at all times maintain a positive amount
of capital.
- 01/12/2004
CRED 8.3.2
See Notes
CRED
8.3.1 R means
that the sum of the items set out at CRED
8.2.1 R(a)-(c)
must produce a positive figure, so that a credit union's assets will at all times exceed
its non-capital liabilities.
- 01/12/2004
CRED 8.3.3
See Notes
CRED
8.3.1 R implements
the principle that every pound saved by a depositor with a credit union should always be worth at least
a pound.
- 01/12/2004
CRED 8.3.4
See Notes
CRED
10.5.1 R and CRED
10.5.2 R mean that bad and doubtful debts must be taken
into account in establishing whether a credit
union is maintaining a positive amount of capital.
- 01/12/2004
Building reserves
CRED 8.3.5
See Notes
A version
1 credit union must establish and maintain a general reserve.
- 01/12/2004
CRED 8.3.6
See Notes
If, at the end of any year of account,
the amount in its general reserve stands at less than 10% of its total assets,
such a credit union must
transfer to its general reserve at least 20% of its profits for that year
(or such lesser sum as is required to bring the amount in its general reserve
up to 10% of its total assets).
- 01/12/2004
CRED 8.3.7
See Notes
For the purposes of CRED
8.3.5 R 'profits' means the profits resulting from the
operations of a credit
union in the year of account in question after deduction of
all operating expenses (including payment of interest) and after making provision
for the depreciation of assets, for tax liabilities and for bad and doubtful
debts, but before the payment of any dividend.
- 01/12/2004
CRED 8.3.8
See Notes
A credit
union may not transfer from its general reserve where its general
reserve stands at less than 10% of its total assets.
- 01/12/2004
Minimum initial capital
CRED 8.3.9
See Notes
A version
1 credit union must have initial capital of at least £1,000.
- 01/12/2004
CRED 8.3.10
See Notes
For the meaning of 'initial capital'
see CRED 8.2.1 R (5) above.
- 01/12/2004
CRED 8.3.11
See Notes
For the relationship between registration
and authorisation see CRED
13.2.1 G. The purpose of CRED
8.3.9 R is to establish for these credit unions a minimum amount of capital
at authorisation,
out of which early expenses may be defrayed. It should be noted that the requirement
in CRED
8.3.9 R does not affect a credit union's obligations
to meet the other capital requirements that apply to it. The ability of a credit union to comply
on a continuing basis with the other capital requirements that apply to it
will be a central factor for consideration in any application for authorisation.
- 01/12/2004
Capital requirement for version 1 credit unions wishing to lend amounts of more than £7,500 in excess of the borrowing member's shareholding.
CRED 8.3.12
See Notes
- (1) A version 1 credit union must not make a loan of an amount greater than £7,500 in excess of the borrowing member's shareholding unless it has a capital to total assets ratio of at least 5%.
- (2) A credit union which is owed by a member a total amount greater than £7,500 in excess of that member's shareholding must maintain at all times, while such an amount is outstanding, a capital to total assets ratio of at least 5%.
CRED 8.3.12A
See Notes
CRED 8.3.12 R (2) does not have the
effect of invalidating existing loans if the capital to assets ratio falls
below 5%.
- 01/01/2006
CRED 8.3.13
See Notes
CRED
10.5.1 R and CRED
10.5.2 R mean that bad and doubtful debts must be taken
into account in establishing the capital to assets ratio.
- 01/12/2004
Capital requirements for large version 1 credit unions
CRED 8.3.14
See Notes
A version
1 credit union with total assets of more than £5 million
or a total number of members of more than 5,000, or both, must maintain at
all times a capital to total assets ratio of at least 5%.
- 01/12/2004
CRED 8.3.15
See Notes
CRED
10.5.1 R and CRED
10.5.2 R mean that bad and doubtful debts must be taken
into account in establishing the capital to assets ratio.
- 01/12/2004
CRED 8.3.16
See Notes
- (1) A version 1 credit union with total assets of more than £10 million or a total number of members of more than 10,000, or both, must maintain at all times a risk-adjusted capital to total assets ratio of at least 8%.
- (2) 'Risk-adjusted capital' has the same meaning as in CRED 8.4.1 RCRED 8.4.2 R (Risk-adjusted capital requirements for version 2 credit unions).
- 01/12/2004
CRED 8.4
Version 2 credit unions
- 01/12/2004
CRED 8.4.1
See Notes
- (1) A version 2 credit union must maintain at all times a risk-adjusted capital to total assets ratio of at least 8% unless CRED 8.4.3 R applies.
- (2) Risk-adjusted capital is calculated as follows:Capital + (provisions - balance of the net liability of borrowers where their loans are 12 months or more in arrears - 35% of the net liability of borrowers where their loans are 3-12 months in arrears).
- 01/12/2004
CRED 8.4.2
See Notes
In calculating risk-adjusted capital:
- (1) the maximum net figure for provisions (after deduction of the stipulated amounts for loans in arrears) that can be included is 1% of total assets;
- (2) 'provisions' includes specific provisions and general provisions; and
- (3) mortgage loans and provisions in respect of mortgage loans must not be included in calculating the loan balances to be deducted from, and the provisions to be added to, the amount of capital.
- 01/12/2004
Minimum initial capital
CRED 8.4.3
See Notes
A version
2 credit union must have initial capital of at least £5,000.
- 01/12/2004
CRED 8.4.4
See Notes
For the meaning of 'initial capital'
see CRED 8.2.1 R (5).
- 01/12/2004
CRED 8.4.5
See Notes
For the relationship between registration
and authorisation see CRED
13.2.1 G. The purpose of CRED
8.4.3 R is to establish for these credit unions a minimum amount of capital
at authorisation,
out of which early expenses may be defrayed. It should be noted that the requirement
in CRED
8.4.3 R does not affect a credit union's obligations
to meet the other capital requirements that apply to it. The ability of a credit union to comply
on a continuing basis with the other capital requirements that apply to it
will be a central factor for consideration in any application for authorisation.
- 01/12/2004
CRED 9
Liquidity
CRED 9.1
Application, purpose and interpretation
- 01/12/2004
CRED 9.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 9.1.2
See Notes
This chapter amplifies Principle 4 under which a credit union must maintain adequate financial
resources and the threshold
condition for permission that
a credit union's resources
must be adequate in relation to the regulated
activities that it carries on.
- 01/12/2004
CRED 9.1.3
See Notes
A central feature of credit union business is maturity transformation.
That is taking short term deposits (in
the form of share accounts) from members and making comparatively long-term
loans. It is important, in order to maintain confidence and protect members,
that a credit union
has adequate liquid assets (liquidity) to enable it to fulfil members' withdrawal
requests within expected timeframes.
- 01/12/2004
CRED 9.1.4
See Notes
The liquid assets held by a credit union should be
sufficient to meet its day-to-day business needs and to provide an appropriate
cushion in the event of pressure arising from unexpected events.
- 01/12/2004
CRED 9.1.5
See Notes
"Unattached shareholding"
means any shares in
the credit union that
are treated as freely withdrawable. This includes shares held by members in
a class of share account, intended for use as a current account, or otherwise
in connection with ancillary services (as defined in section 9 of the Credit
Unions Act 1979), even if (through the existence of a related loan) the free
withdrawability of the shares may be terminated by the committee at any time
in accordance with section 7 of the Credit Unions Act 1979.
- 01/01/2006
- Past version of CRED 9.1.5 before 01/01/2006
CRED 9.1.6
See Notes
- (1) Under section 7 of the Credit Unions Act 1979, if a withdrawal of shares would reduce the member's savings with the credit union to less than his total liability (including contingent liability) to the credit union whether as borrower, guarantor or otherwise then:
- (a) if there is a loan to the member which is treated as under section 11A of the Credit Unions Act 1979, the withdrawal is not permitted; and
- (b) in any other case, the withdrawal is permitted only at the discretion of the committee of management of the credit union.
- (2)
- (a) The most reliable interpretation of section 7 is that the committee may exercise this discretion on a case-by-case basis, but may not treat all such shares as freely withdrawable. This does not mean that every individual case has to be put before the committee. A case can be decided by an official of the credit union, applying a comprehensive policy laid down by the committee. This policy should be fully documented and set out all the factors that might lead to permitting the withdrawal. (Permitting the withdrawal should be the exception, not the norm.) If a decision is not clearly dictated by the committee's policy, then it should be referred to the committee itself.
- (b) The policy may extend to designating as freely withdrawable for the time being the shares in a class of share account, intended for use as a current account, or otherwise in connection with ancillary services (as defined in section 9 of the Credit Unions Act 1979). Where such shares are subject to the committee's discretion in section 7 (through the existence of a related loan) the credit union should not purport to give a contractual commitment to the free withdrawability of the shares, because that section means that the committee is capable of terminating the designation at any time.
- 01/01/2006
- Past version of CRED 9.1.6 before 01/01/2006
CRED 9.1.7
See Notes
'Total relevant liabilities' means the sum of:
- (1) unattached shareholdings in the credit union, and deposits by persons too young to be members of the credit union; and
- (2) liabilities (other than liabilities for shares) with an original or remaining maturity of less than three months (including overdrafts and instalments of loans).
- 01/12/2004
CRED 9.2
General requirements
- 01/12/2004
CRED 9.2.1
See Notes
A credit
union must hold liquid assets of an amount and composition that
is prudent and appropriate to the scale and nature of its business, having
regard to material risks, including the risk of a sudden adverse cash flow,
with a view to enabling it to meet its objective.
- 01/12/2004
CRED 9.2.2
See Notes
A credit
union must establish, maintain and implement an up-to-date liquidity
management policy statement approved by the committee of management and designed
to ensure its compliance with CRED
9.2.1 R.
- 01/12/2004
CRED 9.2.3
See Notes
A version
2 credit union must send to the FSA a copy of its liquidity management policy
statement as soon as is reasonably practicable after approval by the committee
of management.
- 01/12/2004
CRED 9.2.4
See Notes
The responsibility for ensuring that
a credit union can
meet its obligations as they fall due rests with the credit union's management.
- 01/12/2004
CRED 9.2.5
See Notes
A credit
union should be able to satisfy the FSA on a continuing basis that it has a prudent
liquidity management policy and adequate management systems in place to ensure
that the policy is adhered to.
- 01/12/2004
CRED 9.2.6
See Notes
The liquidity management policy statement
of a credit union should
set out the credit union's objectives
for liquidity, the limits within which liquidity should be maintained, and
the types of liquid assets which the credit
union should hold.
- 01/12/2004
CRED 9.2.7
See Notes
A credit
union's committee of management should review and approve its
liquidity management policy statement at least once a year, and more frequently
if necessary, especially in light of significant changes in business.
- 01/12/2004
CRED 9.2.8
See Notes
Where a version 2 credit union has borrowed wholesale
funds, the maturity of such funds and the risk of their not being able to
be refinanced should be taken into account in the formulation of the credit union's liquidity
management policy statement.
- 01/12/2004
CRED 9.2.9
See Notes
When
a credit union provides
ancillary services such as issuing and administering means of payment and
money transmission, it should take into account the potentially greater volatility
of its funds when deciding what amount and composition of liquid assets is
necessary to comply with CRED
9.2.1 R.
- 01/12/2004
CRED 9.3
Minimum liquidity requirements
- 01/12/2004
CRED 9.3.1
See Notes
The liquidity requirements set out in CRED 9.3.2 R; CRED 9.3.5 R are minimum requirements and are subject to the overarching requirement of CRED 9.2.1 R.
- 01/12/2004
CRED 9.3.2
See Notes
A credit
union must at all times hold liquid assets of a value equal
to at least 5% of its total relevant liabilities.
- 01/12/2004
CRED 9.3.3
See Notes
A version 1 credit union must further hold enough liquid assets to ensure that on no two consecutive quarter ends is the level of the credit union's liquid assets below 10% of its total relevant liabilities.
- 01/12/2004
CRED 9.3.7
See Notes
- (1) For the purposes of CRED 9.3.2 R - CRED 9.3.5 R, only those assets shall count as liquid which can be realised for cash at short notice, and within at most eight days.
- (2) Amounts loaned by one credit union to another must not be counted as liquid by the lender.
- 01/12/2004
CRED 9.3.8
See Notes
For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CRED 9.3.2 R CRED 9.3.5 R), assets shall be valued at the amount for which they could be realised within eight days.
- 01/12/2004
CRED 9.3.9
See Notes
- (1) For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CRED 9.3.2 R CRED 9.3.5 R), the securities referred to in CRED 7.2.1 R CRED 7.2.3 R should be valued on the basis that they could be realised at market value minus the following discounts (whether or not this is the case in fact):
- (a) maturity less than 1 year - zero;
- (b) maturity 1 to 5 years - 5%.
- (2) Compliance with CRED 9.3.9 E (1) may be relied on as tending to indicate compliance with CRED 9.3.8 R (the 8-day realisation-value rule).
- (2) Compliance with CRED 9.3.9 E (1) may be relied on as tending to indicate compliance with CRED 9.3.8 R (the 8-day realisation-value rule).
- 01/12/2004
CRED 9.3.10
See Notes
An asset maturing on a non-business day should be regarded
as maturing on the succeeding business
day.
- 01/12/2004
CRED 9.3.11
See Notes
For the purposes of clarity, funds serving
liquidity purposes may be invested in the manner set out in CRED
7.2.1 R provided
that the resulting assets satisfy the relevant requirements of this chapter.
- 01/12/2004
CRED 10
Lending to members
CRED 10.1
Application and purpose
- 01/12/2004
CRED 10.1.1
See Notes
This
chapter applies to all credit
unions in relation to their lending to members under section
11 of the Credit Unions Act 1979.
- 01/12/2004
CRED 10.1.2
See Notes
- (1) This chapter seeks to protect the interests of credit unions' members in respect of loans to members. Principle 4 requires credit unions to maintain adequate financial resources and Chapter 8 sets out the FSA's detailed capital adequacy requirements in respect of credit unions.
- (2) This chapter is not relevant to loans between credit unions, except as indicated in CRED 7.2.6 G(4).
- 01/12/2004
CRED 10.2
General requirements concerning lending policy
- 01/12/2004
CRED 10.2.1
See Notes
A credit
union must establish, maintain, and implement an up-to-date
lending policy statement approved by the committee of management that is prudent
and appropriate to the scale and nature of its business, having regard to
the limits outlined in CRED 10.3 - CRED 10.4.
- 01/12/2004
CRED 10.2.2
See Notes
A version
2 credit union must provide the FSA with a copy of its lending policy statement
as soon as is reasonably practicable after approval by the committee of management.
- 01/12/2004
CRED 10.2.3
See Notes
A principal purpose of credit unions' business is the accumulation
of members' savings to provide a fund out of which loans are provided for
the benefit of the members. Credit
unions may often in practice have less scope to minimise credit
risk through the exercise of discretion than some other lenders. It is therefore
important that a credit
union has a carefully considered and effective lending policy
statement.
- 01/12/2004
CRED 10.2.4
See Notes
CRED 4.3.7 R requires a credit union to maintain
a manual of its policies and procedures. This should include the policy and
procedure for making loans.
- 01/12/2004
CRED 10.2.5
See Notes
The credit
union's committee of management should review and approve its
lending policy at least once a year, and more frequently if necessary (for
example if there is an escalating arrears problem), especially in the light
of significant changes in business.
- 01/12/2004
CRED 10.2.6
See Notes
The lending policy should consider the
conditions for and amounts of loans to members, individual mandates, and the
handling of loan applications.
- 01/12/2004
CRED 10.2.6A
See Notes
- (1) A credit union must not make a loan to:
- (a) one of its officers or approved persons on terms more favourable than those available to other members of the credit union unless:
- (i) that person is a paid employee (other than a director) of the credit union; and
- (ii) the registered rules of the credit union provide explicitly for the making of loans to paid employees on such terms;
- (b) a relative of, or any person otherwise connected with, an officer, approved person or paid employee of the credit union on terms more favourable than those available to other members of the credit union.
- (2) "Relative" has the same meaning as in section 31 of the Credit Unions Act 1979.
CRED 10.2.7
See Notes
- (1) To prevent conflicts of interest, a credit union should have clear arrangements for dealing with loans to the persons specified in CRED 10.2.6A R.
- (2) In relation to staff, the prohibition in CRED 10.2.6A R applies only to those who are officers or approved persons.
- (3) "Connected" in CRED 10.2.6A R includes any close business or personal relationship.
- 01/12/2004
CRED 10.2.8
See Notes
A credit
union should have a documented arrears management policy, setting
out the procedures and process for dealing with borrowers who fall into arrears.
This should be reviewed regularly and promptly in the light of experience.
- 01/12/2004
CRED 10.2.9
See Notes
A credit
union should have a clear, robust and effective approach to
handling arrears and be able to satisfy the FSA on a continuing basis that it has adequate
management and control systems in place to monitor arrears.
- 01/12/2004
CRED 10.2.10
See Notes
A credit
union should ensure that loan assets are valued correctly in
their accounts. A provisioning policy relating to problem loans and arrears
cases should be clearly defined and documented covering the circumstances
in which provisions are to be made.
- 01/12/2004
CRED 10.2.11
See Notes
- (1) A credit union may only make loans to:
- (a) its members who are natural persons qualifying in accordance with section 1(2) of the Credit Unions Act 1979 (see CRED 13 Annex 2 G Table 1G 1);
- (b) other credit unions.
- (2) A credit union may make a loan to a member for a business purpose. However, this does not mean that a credit union may make a loan to a member who merely intends to transmit that loan to another body that will actually carry out the purpose. A credit union should not make loans to members who are acting together to achieve an aggregate loan that exceeds the limits in CRED 10.3.
- 01/12/2004
CRED 10.3
Lending limits
- 01/12/2004
CRED 10.3.1
See Notes
Subject to CRED
10.3.6 R, a version
1 credit union must not lend for a period of more than five years where unsecured and ten years where
secured.
CRED 10.3.2
See Notes
A version
1 credit union must not lend more than £15,000 in excess of the borrowing member's
shareholding, but this rule
is subject to the additional requirement in CRED 8.3.12 R (1).
CRED 10.3.2A
See Notes
The
effect of CRED 8.3.12 R (1) is to prevent
a version 1 credit union from
lending more than £7,500 in excess of the borrowing member's shareholding
unless it has a capital to total assets ratio of at least 5%.
- 01/01/2006
CRED 10.3.3
See Notes
Subject to CRED
10.3.6 R, a version
2 credit union must not lend for a period of more than ten years where unsecured and 25 years where secured.
CRED 10.3.3A
See Notes
A credit union should not
attempt to evade the limits in CRED
10.3.1 R and CRED
10.3.3 R by making loans in the expectation that they will
not be fully repaid by the end of the period, but will be automatically extended
or rescheduled.
- 01/01/2006
CRED 10.3.4
See Notes
The maximum amount that a version 2 credit union may
lend is £15,000 in excess of the
borrowing member's shareholding or 1.5% of total shares in the credit union in excess
of the borrowing member's shareholding, whichever is the greater.
CRED 10.3.4A
See Notes
For
the purpose of calculating the maximum loan in CRED
10.3.4 R, the credit
union may use the amount of total shares as shown in the most
recent annual return to have been sent to the FSA under SUP 16.7.62 R or SUP 16.12.5 R (see CRED
14.10.7 G) if that is the latest reliable figure available.
CRED 10.3.5
See Notes
The lending limit requirements set out above are maxima. A credit union should have adequate systems for recording and controlling all potential exposures. The capital requirements for version 1 credit unions and version 2 credit unions in respect of lending are set out in CRED 8.3 CRED 8.4, including the FSA's requirements in respect of calculating risk-adjusted capital.
- 01/12/2004
CRED 10.3.6
See Notes
A credit union with permission for entering into a regulated mortgage
contract must not enter into such a contract for a term of more
than 25 years.
- 01/12/2004
CRED 10.4
Large exposures
- 01/12/2004
CRED 10.4.1
See Notes
For the purposes of this section, a large exposure is defined as an individual net liability to the credit union which meets both of the following criteria:
- (1) it is at least £7,500;
- (2) it is at least 10% of the value of the credit union's total capital.
CRED 10.4.2
See Notes
An individual large exposure must not exceed 25% of the credit union's capital.
In no circumstances may the aggregate total of all large exposures exceed 500% of the credit union's capital.
- 01/12/2004
CRED 10.4.3
See Notes
The aggregate total of all large exposures must not exceed
300% of capital without a credit
union pre-notifying the FSA.
- 01/12/2004
CRED 10.4.4
See Notes
For the purposes of large exposures the maximum
net liability of a credit
union with assets of £500,000 and 8% capital would be
£10,000 subject to CRED
10.4.2 R and CRED
10.3.4 R.
- 01/12/2004
CRED 10.4.5
See Notes
For a credit union with assets of £1million
and 10% capital the maximum net liability would be £25,000.
- 01/12/2004
CRED 10.4.6
See Notes
Excessive exposure (large loans to an individual borrower
and in aggregate) by a credit
union can create a concentration of risk on the balance sheet
and increase a credit union's vulnerability
to bad debt. This can lead to a strain on capital and solvency. While this
risk cannot be eliminated, it can be contained by limits and controlling the
extent to which credit
unions commit themselves to large exposures. Therefore the large exposure limits set the
maximum sum that may be loaned to any one member as a percentage of reserves
to prevent concentration. All credit
unions should set and document their own large exposure policy limits
to avoid concentration of risk. It is the committee of management's responsibility
to monitor large exposures.
The policy should be reviewed on an annual basis (or more frequently where
required).
- 01/12/2004
CRED 10.5
Provisioning
- 01/12/2004
CRED 10.5.1
See Notes
A credit
union must make
adequate provision for bad and doubtful debt.
- 01/12/2004
CRED 10.5.2
See Notes
- (1) A credit union must make specific provision in its accounts for bad and doubtful debts of at least the amounts set out below:
- (a) 35% of the net liability to the credit union of borrowers where the amount is more than three months in arrears; and
- (b) 100% of the net liability to the credit union of borrowers where the amount is more than 12 months in arrears.
- (2) The net liability of a borrower is the amount of his loan and interest outstanding, less his shareholding.
- 01/12/2004
CRED 10.5.3
See Notes
- (1) A credit union should maintain a general provision for bad and doubtful debts of at least 2% of the net liability to the credit union of borrowers not covered by the specific provisions in CRED 10.5.2 R.
- (2) Contravention of CRED 10.5.3 E (1) may be relied on as tending to establish contravention of CRED 10.5.1 R.
- 01/12/2004
CRED 10.5.4
See Notes
In order to comply with the requirements
of CRED
10.5.1 R - CRED
10.5.3 E it follows that it will be necessary for a credit union to review
its provisioning requirements frequently. The FSA recommends that this is done at least
quarterly.
- 01/12/2004
CRED 10.5.5
See Notes
A credit
union should make it its business to know its customers and, in conjunction with its auditor,
make a judgement on the degree of risk of non-payment attached to loans that
are in arrears. Provisioning should reflect that judgement.
- 01/12/2004
CRED 10.5.5A
See Notes
Where
a delinquent loan is rescheduled and the arrears capitalised, the loan should
be regarded as remaining impaired until there is sufficient evidence that
it is performing on the rescheduled terms. In the meantime, any provision
made in relation to that loan should be maintained, not released.
- 01/01/2006
CRED 10.5.6
See Notes
- (1) CRED 10.5.2 R requires a credit union to maintain minimum levels of specific provision. However, a credit union that only maintains the minimum levels does not necessarily comply with CRED 10.5.1 R. This will depend on the assessment and judgement referred to in CRED 10.5.5 G.
- (2)
- (a) Failure to maintain a general provision of the level indicated in CRED 10.5.3 E creates a presumption that the credit union is not complying with CRED 10.5.1 R, though that presumption can be rebutted by the credit union: for example, it may be able to demonstrate that the occurrence of impaired loans that are either below the threshold for specific provision (that is, they are less than three months in arrears) or are unidentified at the time, is very low.
- (b) If, on the other hand, a credit union does maintain the indicative level in CRED 10.5.3 E, that does not necessarily mean that it complies with CRED 10.5.1 R.
- 01/12/2004
CRED 10.5.7
See Notes
If
a credit union needs
to make higher provisions, beyond the levels in CRED
10.5.2 R and CRED
10.5.3 E,
in order to meet CRED
10.5.1 R,
then it should do so.
- 01/12/2004
CRED 11
Conduct of business
CRED 11.1
Introduction
- 01/12/2004
Conduct of business
CRED 11.1.1
See Notes
CRED 11.1.2
See Notes
- (1) The rules and guidance set out in COBS mainly apply to designated investment businesses and have limited application to deposits.
- (2) The only parts of COBS that set out rules and guidance on deposits, other than for a cash deposit ISA or cash deposit CTF, are the financial promotion rules and those relating to distance contracts for accepting deposits in COBS 5 (Distance contracts) and COBS 15 (Cancellation). Guidance on the way in which those requirements apply to credit unions is set out in CRED 11.4 (Entering into a distance contract for accepting deposits).
CRED 11.1.3
See Notes
- 01/12/2004
CRED 11.1.4
See Notes
The FSA logo
is a registered mark, is subject to copyright and is the property of the FSA. Credit unions are permitted to use the FSA
logo in limited circumstances. Any credit
union which wishes to use the FSA logo should refer to GEN 5 (FSA logo).
- 01/12/2004
Electronic commerce activities
CRED 11.1.5
See Notes
COBS 5.2 (E-Commerce) contains rules applicable to a credit union which carries on an electronic commerce activity; that is, a credit union which accepts deposits, or carries on certain other activities, by way of an information society service.
CTF providers
CRED 11.1.7
See Notes
A credit union which acts as a CTF provider needs to be aware of the requirements relating to CTFs in COBS, in particular COBS Chapters 3,4, and 9 Annex 1, 10, 13, 14 and 15 SUP 15, where relevant, IPRU(INV) Chapter 8 and MIPRU.
CRED 11.2
Financial promotion
- 01/12/2004
CRED 11.2.1
See Notes
Financial
promotion is defined as an invitation or inducement to engage in investment activity.
- 01/12/2004
CRED 11.2.2
See Notes
Financial
promotions can be real time or non-real time. A real time financial promotion is communicated in the course of a personal
visit, telephone conversation or interactive dialogue. A non-real time financial promotion is not
a real time financial promotion.
It includes a financial
promotion made by letter, e-mail or contained in a newspaper,
journal, magazine, other periodical publication, website, television or radio
programme or teletext service.
- 01/12/2004
CRED 11.2.3
See Notes
Where a financial promotion relates to a deposit (other than a cash deposit ISA or cash deposit CTF) only certain parts of the financial promotion rules apply. These are COBS 4.2.1 R, COBS 4.5.2 R, COBS 4.5.7 R, COBS 4.6.2 R, COBS 4.6.6 R, COBS 4.6.7 R, COBS 4.7.1 R, COBS 4.10.2 R, COBS 4.10.4 R, COBS 4.10.5 R and COBS 4.10.10 R.
CRED 11.2.4
See Notes
In addition to the limited application of the financial promotion rules, a number of exemptions within the defined term excluded communication are relevant. In particular, paragraphs (a) and (e) of the definition provide further limitations on the application of the financial promotion rules in relation to credit unions:
- (1) Exemption (a): A financial promotion that would benefit from an exemption in the Financial Promotion Order if it were communicated by an unauthorised person, or which originates outside the United Kingdom and is not capable of having an effect in the United Kingdom.
- (2) Exemption (e): A "one off" financial promotion that is not a cold call. If the conditions set out in (a) to (c) are satisfied, a financial promotion is to be regarded as "one off"; if not, the fact that any one or more of these conditions is met is to be taken into account in determining if a financial promotion is "one off", but a financial promotion may be regarded as "one off" even if none of the conditions are met; the conditions are that:
- (a) the financial promotion is communicated only to one recipient or only to one group of recipients in the expectation that they would engage in any investment activity jointly;
- (b) the identity of the product or service to which the financial promotion relates has been determined having regard to the particular circumstances of the recipient;
- (c) the financial promotion is not part of an organised marketing campaign.
- (3) [deleted]
CRED 11.2.5
See Notes
Despite the limited application of
COBS
to deposits and the exemptions mentioned in CRED
11.2.4 G,
financial promotions (including those which
are exempt) may be subject to more general rules including Principle 7 (Communications with clients) and
SYSC 3 (Systems and controls) and the fair, clear and not misleading rule.
CRED 11.2.6
See Notes
The requirement on a firm under COBS 4.2.1 R (1) is that it must ensure that a financial promotion is fair, clear and not misleading. This is supported by further detailed rules including COBS 4.5.2 R:
- (1) A firm must ensure that information for a retail client:
- (a) includes the name of the firm;
- (b) is accurate and in particular does not emphasise any potential benefits of relevant business or a relevant investment without also giving a fair and prominent indication of any relevant risks;
- (c) is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received; and
- (d) does not disguise, diminish or obscure important items, statements or warnings.
- (2) [deleted]
CRED 11.3
Statutory status disclosure
- 01/12/2004
CRED 11.3.1
See Notes
This
section summarises the requirements of GEN 4 (Statutory status disclosure)
in the context of credit
unions which do not have overseas offices.
- 01/12/2004
CRED 11.3.2
See Notes
GEN
4.3 (Letter disclosure) requires a credit union to take reasonable care to state
that it is "authorised and regulated by the Financial Services Authority"
in every letter and e-mail which it sends to a depositor or potential depositor
on or after 1 March 2004.
- 01/12/2004
CRED 11.4
Entering into a distance contract for accepting deposits
- 01/12/2004
CRED 11.4.1
See Notes
Those parts of COBS that relate to distance contracts for accepting deposits will have limited application to a credit union. This is because the Distance Marketing Directive only applies where there is "an organised distance sales or service-provision scheme run by the supplier" (Article 2(a)). If, therefore, the credit union normally operates face to face and has not set up facilities to enable customers to deal with it at a distance, such as facilities for a customer to deal with it purely by post, telephone, fax of the Internet, the provisions will not be relevant. A one-off transaction dealt with by distance means in order to deal with a particular contingency or emergency will not fall under the COBS provisions.
CRED 11.4.2
See Notes
For those credit unions to which the provisions in COBS will apply, the provisions which are of particular relevance concern the distance communications provisions (COBS 5), pre-contract information (COBS 6, COBS 13 and COBS 14), cancellation rights (COBS 15) and the financial promotion rules (discussed at CRED 11.2). If the credit union provides cash deposit ISAs or cash deposit CTFs further rules may apply.
Pre-contract disclosure requirements
CRED 11.4.3
See Notes
COBS 5.1 sets out the basic requirement that applies before a credit union enters into a distance contract for accepting deposits. The credit union has to ensure that the terms on which it will conduct business, including, in particular, certain required information, is provided to a consumer (which means an individual, acting for purposes which are outside his trade, business or profession) in good time (that is, in sufficient time to enable a customer to consider properly the services on offer) in a durable medium, before the retail customer is bound by the distance contract, unless certain exemptions apply.
CRED 11.4.4
See Notes
The required information is the contractual terms and conditions and the other information set out in COBS 5 Annex 1 R, and covers basic information about the credit union, the main characteristics of the service on offer, the price, details about any distance contract such as its duration, cancellation rights and any other early termination rights and penalties, and information about out-of-court complaints and compensation arrangements.
Exemptions
CRED 11.4.5
See Notes
The exemptions referred to in CRED 11.4.3 G are set out in COBS 5.1. They are relevant:
- (1) where the contract is concluded by telephone and the consumer gives explicit consent to receiving a more limited range of information. COBS 5.1.12 R sets out the information to be provided in such cases. Full information has to be provided, in a durable medium, immediately after conclusion of the distance contract (COBS 5.1.13 R);
- (2) where a means of communication (other than telephone) is used which does not enable provision of required information in a durable medium before conclusion of the contract; in this case full information must also be provided in a durable medium immediately after conclusion of the distance contract (COBS 5.1.13 R);
- (3) where there is an initial service agreement and the contract is in relation to a successive or separate operation of the same nature under that agreement, or there is no initial service agreement and the contract is in relation to a successive or separate operation of the same nature and is being performed no more than one year from the date of performance of the last operation (COBS 5.1.8 R, COBS 5.1.9 R and COBS 5.1.10 G).
Cancellation
CRED 11.4.7
See Notes
A
consumer
has a right
to cancel a
distance contract
for
accepting
deposits
without giving any
reasons and without penalty. The right to cancel has to be exercised within
14 days of the day of the conclusion of the contract or the day on which he
received the contractual terms and conditions, if later (COBS
15.2.1 R).
CRED 11.4.8
See Notes
The only exemptions from the right to cancel are when:
- (1) the price of the service depends on fluctuations in the financial market outside the credit union's control which may occur during the cancellation period; or
- (2) the contract has already been fully performed with the consumer consent before he exercises his right to cancel; or
- (3) the credit union has an initial service agreement with the consumer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COBS 15.2.1 R)
CRED 11.4.9
See Notes
The effects of cancellation are set out
in
COBS 15.4 (Effects of cancellation). Unless the
contract relates to a
CTF, the credit union has to return, no later than
30 days after the date it received notice of cancellation, any sums paid by
the customer in connection with the contract. The customer can be required to pay for any services
provided up to the date of cancellation, provided that the sums are in proportion
to the extent of the services actually provided and could not be construed
as a penalty. No payment can be required if the credit union cannot prove that a customer was told the
amount that would be payable as part of the pre-contract informationor if the credit union starts performance of the contract without the customer's prior consent.
CRED 11.4.10
See Notes
If there are other ancillary distance contracts related to the first, those ancillary contracts may also be cancelled automatically when a consumer exercises a right to cancel (see COBS 15)
CRED 11.4.11
See Notes
CRED 13
CRED 13
CRED 13.1
Application and purpose
- 01/12/2004
CRED 13.1.1
See Notes
This chapter applies to:
- (1) [Deleted]
- (1A) a person considering applying to the FSA for approval of the use in a name of the words "credit union" or "undeb credyd";
- (2) a person applying, or considering applying, to the FSA to become authorised as a credit union with a Part IV permission to accept deposits; and
- (3) a candidate, but only as a matter of general relevance.
- 01/12/2004
CRED 13.1.2
See Notes
This chapter gives guidance about:
- (1) what it means to become a credit union with a Part IV permission to accept deposits;
- (2) the application procedures for persons wishing to become a credit union;
- (3) the procedures by which an applicant can obtain approval for persons to perform controlled functions under the approved persons regime; and
- (4) the FSA's decision making procedures for Part IV permission and approved persons applications.
- 01/12/2004
CRED 13.2
Introduction
- 01/12/2004
CRED 13.2.1
See Notes
Registration and becoming authorised as a credit union are two distinct
statutory processes. The Credit Unions Act 1979 sets out the statutory requirements
for registration and the Act sets
out the statutory requirements relating to authorisation. Section 1 of the Credit Unions
Act 1979 as amended (see CRED 13 Annex 1B) provides that a credit
union may not be registered unless it has applied to the FSA for a Part IV permission to accept deposits, and the
FSA shall not issue an acknowledgment of registration to a credit union unless
it also proposes to give the credit union such a permission. If it does issue
an acknowledgment, it should determine any outstanding application for a Part IV permission to accept deposits as soon
as reasonably possible thereafter.
CRED 13.2.2
See Notes
The circumstances
in which authorisation is
required are set out in the Perimeter Guidance manual (PERG). Information on the authorisation process can be found on the FSA website "How
do I get authorised": http://www.fsa.gov.uk/Pages/Doing/how/index.shtml Opens in a new window.
CRED 13.2.3
See Notes
An applicant for Part IV permission should
consult the FSA website
"How do I get authorised": http://www.fsa.gov.uk/Pages/Doing/how/index.shtml Opens in a new window.
CRED 13.2.4
See Notes
The application pack, which is modular,
contains some general forms applicable to all applicants and some specific
to credit union applicants.
The application pack also contains a set of explanatory notes about the information
required and on how to complete the forms.
- 01/12/2004
CRED 13.2.5
See Notes
Applications should be accompanied by the relevant application fees set by the FSA for registration and authorisation (see FEES).
CRED 13.2.6
See Notes
The FSA is
committed to an interactive application process. Applicants are encouraged
to contact the FSA's Credit
Union team at an early stage to discuss their plans and proposed application.
In any event, applicants are expected to discuss their plans with the FSA's Credit Union team
before making a formal application. In some circumstances, it may be appropriate
for the FSA to
hold a pre-application meeting with an applicant.
- 01/12/2004
CRED 13.2.7
See Notes
- (1) The application pack and accompanying explanatory notes are available on www.fsa.gov.uk or from the Corporate Authorisation department of the FSA. To contact the Corporate Authorisation department:
- (a) telephone on 020 7066 1000; or
- (b) write to the Corporate Authorisation department at The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS; or
- (c) email corporate.authorisation@fsa.gov.uk.
- (2) Copies of all current guidance are available from the FSA website www.fsa.gov.uk or through the FSA's Publication Enquiries department on 020 7066 3298. The FSA will review its guidance from time to time and may need to amend or withdraw published or written guidance in the light of changing circumstances, developing business practices or case law.
- 01/12/2004
CRED 13.2A
Use of name "credit union"
- 01/12/2004
CRED 13.2A.1
See Notes
Section 3 of the Credit Unions Act 1979 (as amended) makes the following provisions about the use of the name "credit union":
- (1) under section 3(1), every credit union with its registered office:
- (a) in England or Scotland should have "credit union" in its name;
- (b) in Wales should have "credit union" or "undeb credyd" in its name;
- (2) under section 3(2), unless one is registered as a credit union, it is an offence to:
- (a) refer to oneself as a "credit union" or "undeb credyd", or any related words;
- (b) represent oneself as being a credit union;
- subject to section 3(3) (see CRED 13.2A.1 G (3));
- (3) section 3(3) provides that section 3(2) (see CRED 13.2A.1 G (2)) does not apply:
- (a) to specified overseas deposit-takers;
- (b) to a person who has the FSA's written approval;
- (c) where an officer or employee uses a title or descriptive expression indicating his office or post with:
- (i) a credit union; or
- (ii) an organisation in CRED 13.2A.1 G (3)(a) or CRED 13.2A.1 G (3)(b).
- 01/12/2004
CRED 13.2A.2
See Notes
The effect of section 3 of the Credit Unions Act 1979 (see CRED 13.2A.1 G) is that if one of the following organisations, for example, wishes to use the words "credit union" in its name, it will need the approval in writing of the FSA:
- (1) a study group working towards registration as a credit union;
- (2) a body representing or providing services to credit unions.
- 01/12/2004
CRED 13.2A.3
See Notes
Approval for study groups (CRED 13.2A.2 G (1)) will generally be limited to a period
of no more than 2 years.
- 01/12/2004
CRED 13.2A.4
See Notes
The organisations in CRED
13.2A.2 G are subject to the general prohibition mentioned
in CRED
7A.3.2 G (1), which means that they cannot accept deposits.
- 01/12/2004
CRED 13.3
What does registration mean?
- 01/12/2004
CRED 13.3.1
See Notes
On registration, a credit union becomes
a special type of industrial
and provident society, which is a body corporate with limited liability.
- 01/12/2004
CRED 13.3.3
See Notes
A credit union must become authorised under the Act (see CRED 13.5) before it can undertake the
activity of accepting deposits.
CRED 13.4
Process for registration
- 01/12/2004
CRED 13.4.1
See Notes
- (1) For registration, applicants must demonstrate to the satisfaction of the FSA that the statutory conditions set out in section 1 of the Credit Unions Act 1979 will be fulfilled. CRED 13 Annex 1 G contains a table listing these statutory conditions. CRED 13 Annex 2 G contains information about eligibility for membership of a credit union.
- (a) One of the conditions is that the objects of the credit union are those, and only those, of a credit union. The objects are set out in full in CRED 13 Annex 1B. Unless an activity is consistent with these objects, a credit union has no power to engage in it. It is important that a credit union satisfies itself that it has the necessary power before engaging in the activity. For instance, it is clear that a credit union is permitted to receive donations from an outside organisation, so may receive the proceeds from a lottery run by that organisation. Any such organisation will need to be independent from the credit union, with separate management and accounting.
- (b) Another condition is that admission to membership of the credit union is restricted to persons who fulfil an appropriate membership qualification ("AMQ") and that in consequence a common bond exists among the members (see CRED 13 Annex 1A - CRED 13 Annex 1C).
- (2) The application pack contains the relevant forms for registration and explanatory notes on how to complete the forms. The notes also contain information about the appropriate membership qualifications for credit unions.
- (3) CRED 13 Annex 2 G contains information about eligibility for membership of a credit union.
CRED 13.5
What does authorisation involve?
- 01/12/2004
CRED 13.5.1
See Notes
An applicant seeking to carry on the
activity of accepting deposits (a regulated activity) must
seek authorisation by
way of a Part IV permission (so
called because the relevant provisions are contained in Part IV of the Act). For the purposes
of the legislation, members' shares in a credit
union are considered to be deposits (in
the same way that shares in a building
society are considered to be deposits).
- 01/12/2004
CRED 13.5.2
See Notes
Whilst there is a single deposit-taking permission, applicants will need
to decide whether to apply to be a version
1 credit union or a version
2 credit union.
- 01/12/2004
CRED 13.5.3
See Notes
An applicant for Part IV permission must also obtain approval
by the FSA of persons who perform one
or more controlled functions.
The approved persons regime
and controlled functions,
as they apply to credit
unions, are explained in CRED 6.
- 01/12/2004
CRED 13.5.4
See Notes
The circumstances
in which authorisation is
required are set out in the Perimeter Guidance manual (PERG). Information on the authorisation process can
be found on the FSA website
"How do I get authorised": http://www.fsa.gov.uk/Pages/Doing/how/index.shtml Opens in a new window, and
FEES 3 (Application, Notification and Vetting Fees) sets out the authorisation
fees that are payable.
CRED 13.6
Process for Part IV permission
- 01/12/2004
CRED 13.6.1
See Notes
The nature of the information and documents requested by
the FSA for
a Part IV permission,
in the application pack, or in subsequent requests, will be proportional to
the risks posed by firms.
For instance, in the case of credit
unions, the risks posed by an applicant seeking permission to carry out
the activities of a version
2 credit union will normally be greater than those of an applicant
seeking to become a version
1 credit union. Similarly, the risks will be greater for an
applicant with a widely-drawn common bond.
- 01/12/2004
CRED 13.6.2
See Notes
The FSA will typically require the following information from all applicants as a minimum:
- (1) a business plan which describes the regulated activities and any unregulated activities which the applicant proposes to carry on, the management and organisational structure of the applicant and details of any proposed outsourcing arrangements;
- (2) appropriately analysed financial budget and projections which demonstrate that the applicant expects to comply with the relevant financial resources requirements applicable to credit unions (see CRED 5.2.1 G (4), CRED 8 and CRED 9);
- (3) details of the systems to be used, and the controls to be put in place, for the running of the credit union (see CRED 4.3);
- (4) details of the individuals to be involved in the running of the credit union, particularly those performing one or more controlled functions for whom approved persons status will be required (see CRED 6.3);
- (5) a statement from two directors of the applicant's committee of management confirming, to the best of their knowledge, the completeness and accuracy of the information supplied; and
- (6) confirmation of insurance against fraud or other dishonesty (see CRED 7A.4.1 R CRED 7A.4.3 R).
- 01/12/2004
CRED 13.6.3
See Notes
The FSA will
begin its formal process of consideration once it has received an application
made using the application pack. During this process, the FSA may consider it appropriate to ask for
additional information, undertake additional lines of enquiry or seek verification
from third parties of the information provided to it by the applicant. The FSA will normally want
to meet with the applicant's management team, in their own area, to discuss
their application. As part of its assessment, the FSA will consider whether the applicant is
ready, willing and organised to comply with the regulatory requirements to
which it will be subject if it is granted Part IV permission to carry on the regulated activities referred
to in its application.
- 01/12/2004
CRED 13.6.4
See Notes
As part of its application for Part IV permission, an
applicant may wish to apply for certain limitations or requirements. Applicants
applying to be a version
1 credit union will need to apply for the appropriate requirement to define
the scope of its Part IV
permission (details of which are given in the application pack).
CRED 13.6.5
See Notes
The FSA may decide to grant an application for Part IV permission subject to limitations or requirements. For example, the FSA:
- (1) can impose limitations, for example, to limit the number of customers from whom the credit union can accept deposits during an initial period of operation; this might be used where, for example, a credit union's systems are not yet adequate to be able to process a high volume of transactions; and
- (2) can impose requirements, for example, to restrict the scope of a credit union's Part IV permission to carry on regulated activities or require a credit union to submit financial returns more frequently than normal.
CRED 13.6.6
See Notes
Where the FSA decides to impose limitations or requirements not requested by the applicant,
these will be discussed with the applicant, and the applicant will be informed
in writing and given the opportunity to make representations before the FSA reaches a final decision.
- 01/12/2004
CRED 13.6.7
See Notes
An applicant which has been granted a Part IV permission by
the FSA is authorised. The FSA will inform the applicant, in writing,
of the effective date of the authorisation.
A credit union should
not commence its regulated
activities before receiving this written notice. When a credit union is authorised, a general description
of the activities it has been authorised to
carry on will be recorded in the FSA
Register which will be accessible by the public.
- 01/12/2004
CRED 13.6.8
See Notes
If a Part IV permission is given, the FSA will expect the credit union to operate in accordance with its business plan. Credit unions are advised to discuss any problems with commencing a regulated activity with their usual supervisory contact at the FSA. If the FSA consider it appropriate to vary or cancel a credit union's Part IV permission (see EG), it will discuss the proposed action with the credit union and ascertain its reasons for not commencing or carrying out the regulated activity, or activities, concerned as described in its application.
CRED 13.6.9
See Notes
The FSA has
six months from
the date of receipt of a completed application to make its determination about
whether to grant a Part
IV permission. However, where the FSA receives an application in respect of
a Part IV permission which
is incomplete, it has up to 12 months to
make its determination. This provides time for the applicant to provide the FSA with the information
required to complete the application.
- 01/12/2004
CRED 13.7
Applying for approved persons status
- 01/12/2004
CRED 13.7.1
See Notes
The approved
persons regime and the controlled
functions that apply to credit
unions with a Part
IV permission to accept
deposits are explained in more detail in CRED 6.3.
- 01/12/2004
CRED 13.7.2
See Notes
An applicant for Part IV permission must take reasonable care
that it has applied in respect of all persons who
will be performing controlled
functions for approval by the FSA. A person cannot
commence performing a controlled
function until it has been approved by the FSA. Applicants planning to outsource the
performance of one or more controlled
functions should discuss the approved persons requirements with their usual supervisory
contact at the FSA.
- 01/12/2004
CRED 13.7.3
See Notes
Applicants for Part IV Permission should complete Form A (included as part of the FSA's application pack) when applying for approval of a person to perform a controlled function.
CRED 13.7.4
See Notes
The FSA's application
pack includes explanatory notes on how to complete the approved persons forms.
- 01/12/2004
CRED 13.7.5
See Notes
The FSA has
to process complete approved
person applications within three months of receipt, but it will aim to come
to a decision more quickly than this whenever circumstances allow. Where the FSA has to request additional
information, the elapsed time from receipt of the application to determination
may be more than three months to
make a determination about the application.
- 01/12/2004
CRED 13.7.6
See Notes
The FSA may
grant an application only if it is satisfied that the candidate is a fit and proper person to perform the controlled function stated
in the application form. The criteria used by the FSA in making this judgement are covered
in CRED 6.4. Responsibility lies with the applicant to satisfy
the FSA that
the candidate is
fit and proper to perform any controlled
function applied for.
- 01/12/2004
CRED 13.7.7
See Notes
SUP
10.13.16 R requires that, if a firm becomes
aware of information which would reasonably be material to the assessment
of an approved person's,
or a candidate's,
fitness and propriety (see FIT),
it must inform the FSA on
Form D as soon as practicable.
CRED 13.7.8
See Notes
- 01/12/2004
CRED 13 Annex 1
Requirements of Registration
- 01/12/2004
The requirements of registration under the Industrial and Provident Societies Act 1965, as set out in the Credit Unions Act 1979 and referred to in CRED 13.4.1G.
See Notes
| REQUIREMENT | SECTION OF THE RELEVANT ACTS | |
| That the objects of the society are those, and only those of a credit union. | Credit Unions Act 1979, s.1(2)(a) | |
See CRED 13 Annex 1B G Section 1 of the Credit Unions Act 1979 (as amended). |
Credit Unions Act 1979, s.1(3) | |
| That admission to membership of the society is restricted to individuals all of whom fulfil a specific qualification which is appropriate to a credit union (and that in consequence a "common bond" exists between members). | Credit Unions Act 1979, s.1(2)(b) | |
See CRED 13 Annex 1B G Section 1 of the Credit Unions Act 1979 (as amended) - CRED 13 Annex 1C G Qualifications approved by the FSA (and the Registry of Friendly Societies). |
Credit Unions Act 1979, s.1(4) | |
| That the rules of the credit union are in a form as agreed by the FSA and provide for all matters required by the legislation. | Credit Unions Act 1979, s.4(1) and Schedule 1 | |
| That the registered office of the credit union is in Great Britain. | Credit Unions Act 1979, s.1(1)(c) | |
| See CRED 13 Annex 1B G Section 1 of the Credit Unions Act 1979 (as amended). | Credit Unions Act 1979, s.1(1)(c) | |
| That a suitable name is chosen for the credit union. | Credit Unions Act 1979, s.3 | |
| for credit unions with their registered office in England or Scotland their name must always include the words 'Credit Union' and have 'Limited' as the last word in the name | Credit Unions Act 1979, s.3(1) and 3(4) | |
| for credit unions with their registered office in Wales their name may use 'undeb credyd' instead of 'Credit union' and 'cyfyngedig' instead of 'Limited' | The Welsh Language Act 1993, s.28 and 29 | |
| That the credit union has at least 21 members. | Credit Unions Act 1979, s.6(1) | |
| only individuals can be members of a credit union | Credit Unions Act 1979, s.5(1) | |
| an individual is not a member of a credit union unless he holds at least one fully paid-up share in that credit union | Credit Unions Act 1979, s.1(6) | |
- 01/01/2005
- Past version of CRED 13 before 01/01/2005
CRED 13 Annex 1A
Common bond
- 01/01/2005
CRED 13 Annex 1A 1
| G | ||||
| Application | ||||
| 1. | (1) | This Annex is relevant to: | ||
| (a) | societies (typically known as "study groups") seeking registration as credit unions (see CRED 13 Ann 1A G 1(2)); and | |||
| (b) | credit unions seeking to amend their membership qualifications. | |||
| (2) | When the term "credit union" is in italics, its definition is in the Glossary to the FSA Handbook which reads: "a body corporate registered under the Industrial and Provident Societies Act 1965 as a credit union in accordance with the Credit Unions Act, which is an authorised person". When the term is not in italics, it may also refer to a credit union that does not have permission to take deposits, but is merely registered, or is a study group or other association seeking to be registered as a credit union. The term is only intended to refer to a credit union in Great Britain, not one in Northern Ireland. | |||
| Introduction | ||||
| 2. | (1) | This Annex relates to section 1 of the Credit Unions Act 1979 (see CRED 13 Annex 1B). It explains how the FSA exercises its statutory function of satisfying itself before registration that a common bond exists among the members of a credit union. | ||
| (2) | These are the key points covered by this Annex: | |||
| (a) | the need for a common bond is fundamental to the regulatory regime for credit unions; | |||
| (b) | an "appropriate membership qualification" does not necessarily create a common bond; | |||
| (c) | the FSA has adopted the following policy for the geographical extent of terms limiting membership qualifications: | |||
| (i) | "locality" is comparable in extent to a principal tier of local government (for example: a single city, London borough or county); and | |||
| (ii) | "area" is comparable in extent to a single administrative region (for example: Scotland, Wales, North-East England or London); | |||
| (d) | a membership qualification based on association between members may be combined with another qualification set out in section 1(4) of the Credit Unions Act 1979 (for example, residing in or being employed in a particular locality - see CRED 13 Annex 1B) but not with additional qualifications created under that subsection; | |||
| (e) | common bonds cannot be infinitely extended, so the FSA has adopted the policy of using the following presumptions for or against the existence of a common bond for different numbers of persons eligible for membership: | |||
| (i) | up to 100,000 - there is a presumption for the common bond (if supported by a statutory declaration - see CRED 13 Ann 1A G 2(2)(g)); | |||
| (ii) | from 100,000 to 1 million - there is no presumption either way: the credit union has to make a case; and | |||
| (iii) | over 1 million - there is a presumption against the common bond: the credit union will have to have particularly strong arguments to succeed in making a case; | |||
| (f) | the common bond is not a franchise, so: | |||
| (i) | when deciding whether to approve a common bond, the FSA will not take into account whether the proposed area overlaps the area of another credit union; and | |||
| (ii) | it is not necessary for a credit union to demonstrate an intention to service the whole of its common bond are | |||
| (g) | (i) | three members and the secretary of a credit union may make a statutory declaration that as a result of the qualification for admission to membership, a common bond exists between the members (but the FSA may require other evidence - see CRED 13 Ann1A 7(2)(b)); | ||
| (ii) | there is a special form for this purpose; | |||
| (iii) | a statutory declaration is made under the provisions of the Statutory Declarations Act 1835 and must be signed before a solicitor or commissioner for oaths or notary public or justice of the peace; | |||
| (iv) | it is a criminal offence knowingly or wilfully to make a false statutory declaration, and an offender may be imprisoned or fined or both. | |||
| Statutory function | ||||
| 3. | A credit union may be registered if the FSA is satisfied (among other things) that admission is restricted to persons who fulfil an "appropriate membership qualification", in consequence of which a "common bond" exists among the members (sections 1(1)(a) and 1(2)(b) of the Credit Unions Act 1979 (CRED 13 Annex 1B)). | |||
| Handbook material | ||||
| 4. | CRED 13 (Registration and authorisation) provides guidance on the registration and authorisation of credit unions. | |||
| What is a common bond? | ||||
| 5. | (1) | The Credit Unions Act 1979 provides for the registration of credit unions under the Industrial and Provident Societies Act 1965 (the Act under which bona fide co-operatives are registered). | ||
| (2) | Credit unions are only allowed to have the objects set out in section 1(3) of the Credit Unions Act 1979 (see CRED 13 Annex 1B). They are thus restricted to providing services to their members, not to the public at large. | |||
| (3) | Membership of a credit union must be restricted by an "appropriate membership qualification" that creates a common bond (section 1(2)(b) of the Credit Unions Act 1979 - see CRED 13 Annex 1B and CRED 13 Annex 1C). | |||
| (4) | It is apparent from the Parliamentary debates on the Credit Unions Act 1979 that persons who had a common bond were envisaged as having some degree of shared identity, a sense of belonging or a collective interest. The FSA considers that the bond should be sufficient to encourage members to do some or all of the following: | |||
| (a) | play an active role in the credit union (for example, by volunteering); | |||
| (b) | save regularly; and | |||
| (c) | repay loans promptly. | |||
| The sense of obligation to save and repay among the members of credit unions would be greater than among persons dealing with an ordinary commercial provider. | ||||
| (5) | The decision whether or not a common bond exists is made under the Credit Unions Act 1979, so the basis for the FSA's decision will be confined to criteria under that Act, and prudential issues will not be directly involved. However, in discharging its responsibilities under the Act, the FSA will need to satisfy itself that the credit union will meet or continue to meet the threshold conditions and not put its members' funds at risk. These issues will be considered in a risk-based manner when the FSA decides whether or not to give a credit union permission to accept deposits. Section 1 of the Credit Unions Act 1979 as amended (see CRED 13 Annex 1B) provides that a credit union may not be registered unless it has applied to the FSA for such permission, and the FSA shall not register a credit union unless it proposes to give the credit union permission. The FSA may give the credit union an opportunity of withdrawing an application for registration if it considers that it will not be able to grant authorisation. Prudential issues will also be considered separately when a credit union seeks to amend its membership qualification. | |||
| (6) | It is important that a credit union should not admit to membership any person who does not share the common bond; that is any person who is ineligible under the credit union's membership qualification. CRED 13 Annex 2 G provides further guidance about the consequences of admitting ineligible persons. | |||
| What is an "appropriate membership qualification"? | ||||
| 6. | (1) | "Appropriate membership qualifications" are such qualifications as "residing in a particular locality", "being employed by a particular employer" and "being a member of a bona fide organisation". Some of the qualifications were included when the Credit Unions Act 1979 was passed; others have been added to that Act by Deregulation and other Orders; and others have been approved by the FSA, or its predecessor, the Registry of Friendly Societies. A full list of "appropriate membership qualifications" is given in CRED 13 Annex 1B (Section 1 of the Credit Unions Act 1979, as amended) and CRED 13 Annex 1C (Qualifications approved by the FSA (and the Registry of Friendly Societies)). The FSA has power to approve further qualifications. | ||
| (2) | The membership of a credit union is made up of the following types of member: | |||
| (a) | directly qualifying member - who fulfils the "appropriate membership qualification"; | |||
| (b) | indirectly qualifying member ("family member") - who lives in the same household as, and is a relative of, a directly qualifying member; and | |||
| (c) | non-qualifying member - who joined the credit union as a directly or indirectly qualifying member, but has ceased to be so. | |||
| Further guidance on eligibility for membership of a credit union is given in CRED 13 Annex 2 G. | ||||
| (3) | The two concepts of the "appropriate membership qualification" and the "common bond" are often treated in the credit union sector as though they were interchangeable, but this is not the case. The "appropriate membership qualification" exists as the basis for creating the common bond: thus, the "appropriate membership qualification" may be viewed as the cause and the "common bond" the effect. But the fact that there is an "appropriate membership qualification" does not necessarily mean that there will be a "common bond". | |||
| (4) | For registration to be possible, both the "appropriate membership qualification" and the "common bond" have to be in place. On examining the "appropriate membership qualification", the FSA could in theory infer from it the existence of a "common bond" (section 1(5)(b) of the Credit Unions Act 1979 - see CRED 13 Annex 1B) without a statutory declaration or further evidence. However, the FSA is unlikely to be able to make this inference for any but the smallest of population pools - see CRED 13 Ann 1A 7(2). | |||
| (5) | Since the Regulatory Reform (Credit Unions) Order 2003, it is possible for a credit union to adopt a membership qualification combining association and one of the other qualifications set out in section 1(4)(a), (b), (c), (d) or (f) of the Credit Unions Act 1979, as amended (without the need for the FSA to approve an additional qualification for each combination, under the power in the tailpiece to that subsection - see CRED 13 Annex 1B). For example, a credit union may now adopt a membership qualification under which some members reside in the locality (but do not belong to a bona fide organisation there) and other members belong to a bona fide organisation in the locality (but do not reside there). However, a credit union cannot combine association and one of the qualifications approved by the FSA or Registry of Friendly Societies (see CRED 13 Annex 1C and CRED 13 Ann 1A G 10(2)); nor may the qualifications in section 1(4)(a), (b), (c), (d) or (f) of the Credit Unions Act 1979, as amended, be combined with each other (see CRED 13 Annex 1B). | |||
| (6) | Having chosen an "appropriate membership qualification" from the list, it has always been possible for a credit union to impose within its registered rules an additional requirement upon members. This is the effect of the words in section 1(2)(b) of the Credit Unions Act 1979 see CRED 13 Annex 1B: "whether or not any other qualifications are also required by the rules". Thus it has always been possible to adopt a requirement that each member of the credit union must both reside and belong to a bona fide organisation in the locality. Under such a qualification, neither a person who merely resides (but does not belong to the organisation), nor one who merely belongs to the organisation (but does not reside) may join the credit union. | |||
| (7) | CRED 13 Annex 1C lists the qualifications approved by the FSA (or its predecessor, the Registry of Friendly Societies). The FSA has power, as previously mentioned, to approve further qualifications. | |||
| What has the FSA to decide? | ||||
| 7. | (1) | In relation to membership, the FSA has to be satisfied on two counts: | ||
| (a) | there is an "appropriate membership qualification"; and | |||
| (b) | in consequence of the "appropriate membership qualification", a common bond exists. | |||
| It is a two-stage process: the first stage is factual (a question of technical validity); the second is judgemental (and potentially subjective). | ||||
| (2) | If it considers it proper in the circumstances of the case, the FSA may: | |||
| (a) | infer the existence of a common bond from the appropriate membership qualification (but see CRED 13 Ann 1A G 6(4)); or | |||
| (b) | rely on a statutory declaration (by 3 members and the secretary of the credit union or prospective credit union - see CRED 13 Ann 1A 2(2)(g)) that a common bond exists (section 1(5) of the Credit Unions Act 1979 - see CRED 13 Annex 1B). Even where a statutory declaration is given, the FSA may require other evidence to support the credit union's (or prospective credit union's) contention that there is a common bond. | |||
| Meaning of "locality " in "appropriate membership qualifications " based on residence | ||||
| 8. | (1) | Although several of the "appropriate membership qualifications" (see CRED 13 Annex 1B - CRED 13 Annex 1C) use the term "locality", it is not defined by the Credit Unions Act 1979. Historically, the Registry of Friendly Societies took a fairly restrictive view of its meaning, but the FSA is taking a broader one, drawing on case law and other statutory uses of that term. | ||
| (2) | The FSA's working definition is that a "locality" is a natural geographical or administrative unit, comparable in size (but not limited to) the principal tier of local government in Great Britain, that is unitary authorities or county councils. The justification for this is that the common provision of "local" public services is currently made at this level. | |||
| (3) | So the FSA will generally accept that "locality" extends up to the area covered by such local authorities, and so may cover such areas as single cities, London boroughs or counties. If larger areas were proposed, the onus would lie with credit unions to demonstrate that they still constituted a "locality". Even if a geographical or administrative area satisfies the criteria for being a "locality", that does not mean that there will be a common bond (see CRED 13 Ann 1A G 2(2)(b) and 11(1)-(5)). | |||
| Meaning of "area " in "appropriate membership qualifications " based on employment | ||||
| 9. | The "appropriate membership qualification" based on employment in CRED 13 Annex 1C uses the term "area", but this is not defined in the Credit Unions Act 1979. The FSA accepts that the term "area" is potentially much larger in scope than "locality", and that it could extend up to the size of a single standard administrative region within Great Britain. So, for example, Scotland, Wales, the North-East of England or Greater London could be regarded as "areas" for the purpose of this "appropriate membership qualification". To be acceptable, it is not necessary for the boundary proposed by a credit union to coincide with an actual standard administrative region. | |||
| Regulatory Reform (Credit Unions) Order 2003 and associational "appropriate membership qualification" | ||||
| 10. | (1) | The "appropriate membership qualification" in section 1(4)(e) of the Credit Unions Act 1979 is that of "being a member of a bona fide organisation or being otherwise associated with other members of the society for a purpose other than that of forming a society to be registered as a credit union". So the members must be associated through something other than the credit union. The stronger the character of the association between the individuals, the more likely it is to form the basis for the existence of a common bond. | ||
| (2) | As a result of the Regulatory Reform (Credit Unions) Order 2003, it is now possible for a credit union to adopt a membership qualification combining association and one of the other qualifications set out in section 1(4)(a), (b), (c), (d) or (f) of the Credit Unions Act 1979, as amended (without the need for the FSA to approve an additional qualification for each combination, under the power in the tailpiece to that subsection - see CRED 13 Annex 1B and CRED 13 Ann 1A G 6(5)). However, it is not possible for a credit union to combine association and one of those qualifications specifically approved by the FSA or its predecessor, the Registry of Friendly Societies - see CRED 13 Annex 1C and CRED 13 Ann 1A G 6(5), nor may the qualifications in section 1(4)(a), (b), (c), (d) or (f) of the Credit Unions Act 1979, as amended, be combined with each other. This means that a single credit union may be properly formed for persons who: | |||
| (a) | live or work in a locality; or | |||
| (b) | associate with the residents and workers (through, for example, attending a religious centre in the locality). | |||
| (3) | However, it is still necessary to establish that the qualifications establish a common bond: this may be difficult if there is no shared identity between the members qualifying under the different qualifications (even where the population pool is below 100,000 - CRED 13 Ann 1A G 11(3)). | |||
| Overall size of population pool for "appropriate membership qualifications " | ||||
| 11. | (1) | It is in the nature of the common bond that the concept cannot be infinitely expanded: the larger the eligible population pool covered by an "appropriate membership qualification", the weaker or less plausible will be the existence of a common bond. | ||
| (2) | It is not practical to expect credit unions to operate on the basis that members will be fully acquainted with each other, but there has to be some mutual identification, and some point at which this ceases to have a significant effect. | |||
| (3) | The Registry of Friendly Societies (a predecessor of the FSA) adopted 100,000 as an indicative maximum for the size of the residential population in a common bond area. The FSA has further developed that thinking through its decisions in subsequent cases. For full transparency, the indicative bands currently used by the FSA are set out below: | |||
| (a) | where an "appropriate membership qualification" covers a pool of up to 100,000 people eligible to be members: | |||
| (i) | there is a presumption in favour of the existence of a common bond; and | |||
| (ii) | the FSA will (provided the "appropriate membership qualification" is technically valid and there are no unusual features) generally accept a simple explanation of the nature of the common bond, together with a statutory declaration (but see CRED 13 Ann 1A G 10(3)). | |||
| (b) | where an "appropriate membership qualification" covers a pool of between 100,000 and 1 million eligible people: | |||
| (i) | there is no presumption in favour of the existence of a common bond; and | |||
| (ii) | the FSA expects the credit union to make a positive, convincing case, marshalling all the information relevant to establishing that a common bond exists among the members. | |||
| (c) | where an "appropriate membership qualification" covers a pool of more than 1 million eligible people: | |||
| (i) | there is a presumption that the common bond is so dilute as to be meaningless; but | |||
| (ii) | it is open to a credit union to make a submission to convince the FSA that a common bond exists among the members: but its arguments would have to be particularly strong for it to succeed in making a case. | |||
| (4) | The FSA's decision whether or not to accept the existence of a common bond (for a new or prospective credit union) is made on an individual basis. So decisions (whether made by the FSA or its predecessor, the Registry of Friendly Societies) create no binding precedent that a population pool of a given size is acceptable for a particular "appropriate membership qualification". | |||
| (5) | Given the range of "appropriate membership qualification" and the different populations covered, it is not possible to be prescriptive about the information necessary to show that a common bond is real. In general, it has been the experience of the Registry of Friendly Societies and the FSA that it is fairly straightforward to make a plausible case for the existence of a common bond where the "appropriate membership qualification" is based on employment by a single employer. For residential qualifications, applicants should draw on their local knowledge to identify those elements, geographical and social that create a sense of cohesion. For a qualification based on living or working in a particular locality, the applicants might wish to identify the ways in which workers from outside the area become involved in the activities of the residential community. | |||
| (6) | The size thresholds set out above apply to the number of persons eligible for membership under any "appropriate membership qualification", not just ones based on residence. | |||
| Overlapping common bond areas | ||||
| 12. | A common bond area cannot be regarded legally as a franchise, giving exclusive rights of access to a particular area or pool of potential members. The FSA recognises the value of consolidation in providing stronger entities, but there is no justification in current legislation for refusing the registration of a new credit union in an area already served by existing credit unions, nor even for consulting them: the FSA's decision on registration is based only on the criteria in the Credit Unions Act 1979 (see CRED 13 Ann 1A G 5(5). In the absence of express statutory support, it would be wrong for the FSA to act in a manner that could be construed as anti-competitive. So the FSA will not refuse registration on the grounds of overlap, nor will it undertake to consult credit unions whose common bond area may be overlapped by a later registration. | |||
| Servicing whole of area | ||||
| 13. | Since the common bond is not a franchise, the FSA will not expect a credit union to service fully the whole of its area or population pool. But where the "appropriate membership qualification" covers a large population pool, the inference is that the bond is likely to be weaker, and there will need to be more justification. An intention to service only part of the area does not help to establish whether or not the "appropriate membership qualification" establishes a common bond for the area as a whole. | |||
| Mergers | ||||
| 14. | (1) | The Credit Unions Act 1979 allows credit unions to merge, either by amalgamation (where a new credit union is created and the constituents cease to exist) or by transfer of engagements (where the credit union transferring its engagements ceases to exist, but the enlarged credit union accepting the engagements continues). | ||
| (2) | For either of these procedures to be practicable in individual cases: | |||
| (a) | the merged credit union will need to have an "appropriate membership qualification" that creates a "common bond"; and | |||
| (b) | members of the constituent credit unions will need to be eligible for membership of the merged credit union. | |||
| (3) | So in individual cases: | |||
| (a) | it might not be possible for the merged credit union to adopt an "appropriate membership qualification" (for example, the new catchment area required for the merger of two residential credit unions might not qualify under the definition of "locality" - see CRED 13 Ann 1A G 8(1)-(3)); | |||
| (b) | even though each credit union seeking to merge has a "common bond" among its own members, this does not necessarily mean that there would be a common bond among all the members of the merged credit union (for example, too large a population pool might be produced by the merger - see CRED 13 Ann 1A G 11(1)). | |||
| What information does a credit union need to provide in support of a common bond application? | ||||
| 15. | Table | |||
| Population pool | Information needed | |||
| Up to 100,000 | Statutory declaration Simple explanation of common bond (subject to CRED 13 Ann 1A G 10(3)) |
|||
| 100,000 to 1 million | Convincing case that common bond exists | |||
| Over 1 million | Evidence to rebut presumption against existence of common bond (special factors generating particular interaction in this population pool, despite its large size and the dilution normally expected in such circumstances) | |||
CRED 13 Annex 1B
Section 1 of the Credit Unions Act 1979 (as amended)
- 01/01/2005
| D | |||
| 1. | Registration as a credit union | ||
| (1) | Subject to - sections 2(1) and 7(1) of the Industrial and Provident Societies Act 1965 (in this Act referred to as "the 1965 Act"), a society may be registered under that Act if: | ||
| (a) | it is shown to the satisfaction of the Authority that the conditions specified in subsection (2) below are fulfilled; | ||
| (b) | the rules of the society comply with section 4(1) [of this Act]; | ||
| (c) | the place which under those rules is to be the society's registered office is situated in Great Britain; | ||
| (d) | the society has made an application to the Authority for Part IV permission under section 40 of the Financial Services and Markets Act 2000 (in this Act referred to as "the 2000 Act" to accept deposits; and | ||
| (e) | the Authority is satisfied that, once registered under the 1965 Act, the society will satisfy, and continue to satisfy, the threshold conditions set out in Schedule 6 to the 2000 Act in relation to the regulated activity of accepting deposits; and a society which is so registered by virtue of this section shall be registered as, and is in this Act referred to as, a "credit union". | ||
| (1A) | The Authority shall not issue an acknowledgement of registration under section 2(3) of the 1965 Act to a credit union unless it also proposes to give that society permission under Part IV of the 2000 Act to accept deposits. | ||
| (2) | The conditions referred to in subsection (1)(a) above are - | ||
| (a) | that the objects of the society are those, and only those, of a credit union; and | ||
| (b) | that as a result of any provision of the rules, admission to membership of the society meets the requirement specified in subsection (3A) or (3B) below (whether or not any other qualifications for admission to membership are also required by the rules) and that in consequence, a common bond exists between members of the society. | ||
| (3) | The objects of a credit union are - | ||
| (a) | the promotion of thrift among the members of the society by the accumulation of their savings; | ||
| (b) | the creation of sources of credit for the benefit of the members of the society at a fair and reasonable rate of interest; | ||
| (c) | the use and control of the members' savings for their mutual benefit; and | ||
| (d) | the training and education of the members in the wise use of money and in the management of their financial affairs. | ||
| (3A) | The requirement specified in this subsection is that admission to membership of the society is restricted to persons all of whom fulfil the same specific qualification for admission to membership, being a qualification specified in, or approved under, subsection (4) below as being appropriate to a credit union. | ||
| (3B) | The requirement specified in this subsection is that admission to membership of the society is restricted to persons each of whom fulfils either - | ||
| (a) | the qualification for admission to membership specified by paragraph (e) of subsection (4) below as being appropriate to a credit union; or | ||
| (b) | the same specific qualification for admission to membership, being a qualification which is so specified in paragraph (a), (b), (c), (d) or (f) of that subsection. | ||
| (4) | The qualifications for admission to membership which are appropriate to a credit union are - | ||
| (a) | following a particular occupation; | ||
| (b) | residing in a particular locality; | ||
| (c) | being employed in a particular locality; | ||
| (d) | being employed by a particular employer; | ||
| (e) | being a member of a bona fide organisation or being otherwise associated with other members of the society for a purpose other than that of forming a society to be registered as a credit union; | ||
| (f) | residing in or being employed in a particular locality; | ||
| and such other qualifications as are for the time being approved by the Authority. | |||
| (5) | In ascertaining whether a common bond exists between the members of a society, the Authority - | ||
| (a) | may, if it considers it proper in the circumstances of the case, treat as sufficient evidence of the existence of a common bond a statutory declaration which is given by three members and the secretary of the society, and is to the effect that a common bond exists | ||
| (b) | may, if it considers it proper in the circumstances of the case, treat the fact that admission to membership is restricted as mentioned in subsection (2)(b) above as sufficient evidence of the existence of a common bond. | ||
| (6) | For the purposes of this Act, if the rules of a credit union so provide, a person shall be treated as fulfilling a qualification for admission to membership stated in those rules if he is a member of the same household as, and is a relative of, another person who is a member of the credit union and fulfils that qualification directly. | ||
| In section 1 of the Credit Unions Act 1979, the FSA is referred to as "the Authority". | |||
- 01/01/2005
CRED 13 Annex 1C
Qualifications approved by the FSA (and the Registry of Friendly Societies)
- 01/01/2005
| D | |||
| 1. | The following qualifications (in addition to those set out in section 1(4) of the Credit Unions Act 1979) have been approved by the FSA (and the Registry of Friendly Societies ("RFS")): | ||
| (1) | being currently in receipt of a continuing and regular contractual payment arising from employment by a particular employer; | ||
| RFS:25 February 1994 | |||
| (2) | being currently in receipt of a continuing and regular contractual payment arising from employment by particular employers in a particular area; | ||
| RFS: 6 October 1994 | |||
| (3) | being currently in receipt of a continuing and regular payment arising from participation in the provision of a public service of a particular nature, or of particular services associated with such participation; | ||
| RFS: 22 May 1998 | |||
| (4) | residing in a particular locality, or being a member of a bona fide organisation or group of organisations (or otherwise having a continuing and active association with one or more of such organisations) existing within that locality for a purpose other than that of forming a society to be registered as a credit union; | ||
| RFS: 15 November 1999 | |||
| (5) | being employed by an undertaking in a particular group of employers (and for this purpose "group" has the same meaning as in section 421 of the Financial Services and Markets Act 2000). | ||
| FSA 1 January 2005 | |||
| 2. | Section 421 of the Act: | ||
| (1) | In this Act "group", in relation to a person ("A"), means A and any person who is- | ||
| (a) | a parent undertaking of A; | ||
| (b) | a subsidiary undertaking of A; | ||
| (c) | a subsidiary undertaking of a parent undertaking of A; | ||
| (d) | a parent undertaking of a subsidiary undertaking of A; | ||
| (e) | an undertaking in which A or an undertaking mentioned in paragraph (a), (b), (c) or (d) has a participating interest; | ||
| (f) | if A or an undertaking mentioned in paragraph (a) or (d) is a building society, an associated undertaking of the society; or | ||
| (g) | if A or an undertaking mentioned in paragraph (a) or (d) is an incorporated friendly society, a body corporate of which the society has joint control (within the meaning of section 13(9)(c) or (cc) of the Friendly Societies Act 1992). | ||
| (2) | "Participating interest" has the same meaning as in Part VII of the Companies Act 1985 or Part VIII of the Companies (Northern Ireland) Order 1986; but also includes an interest held by an individual which would be a participating interest for the purposes of those provisions if he were taken to be an undertaking. | ||
| (3) | "Associated undertaking" has the meaning given in section 119(1) of the Building Societies Act 1986. | ||
- 01/01/2005
- Future version of CRED 13 after 06/06/2008
CRED 13 Annex 2
Eligibility for membership of a credit union
- 01/12/2004
See Notes
| Admission of members | |||
| 1. | It is a condition of registration of a credit union that its membership is restricted to persons who fulfil (directly or indirectly) the qualification stated in the credit union's registered rules (section 1(2) of the Credit Unions Act 1979). | ||
| Categories of membership | |||
| 2. | Eligibility for membership of a credit union is determined by its registered rules. Each member of a credit union should fall within one of the following categories. | ||
| (1) | Category 1. Directly qualifying member | ||
| A directly qualifying member is a person who: | |||
| (a) | meets the membership criteria set out in the credit union's registered rules (section 1 of the Credit Unions Act 1979); and | ||
| (b) | is above the age of 16 (unless the credit union's registered rules stipulate a higher age) (section 20 of the Industrial & Provident Societies Act 1965). | ||
| Note: | A member who is under the age of 18 may not be a member of the committee, trustee, manager or treasurer of the credit union (section 20 of the Industrial & Provident Societies Act 1965) or receive a loan (section 11(1) of the Credit Unions Act 1979). | ||
| (2) | Category 2. Indirectly qualifying member | ||
| An indirectly qualifying member ("family member") qualifies only through a directly qualifying member (Category 1 above). This category of membership is available only if the registered rules of the credit union provide for it explicitly. | |||
| An indirectly qualifying member ("family member") is a person who is: | |||
| (a) | a member of the same household as; and | ||
| (b) | a relative of another person who is; | ||
| a directly qualifying member of the credit union (section 1(6) of the Credit Unions Act 1979). | |||
| (3) | Category 3. Non-qualifying member | ||
| A person in this category would originally have joined the credit union as a directly qualifying member (Category 1 ) or indirectly qualifying member ("family member") (Category 2 ). This category of membership is available unless the credit union's registered rules provide otherwise. The number of non-qualifying members should not at any time exceed ten per cent of the total membership of the credit union (section 5(6) of the Credit Unions Act 1979). The registered rules of a credit union should make provision for terminating the membership of members in order to comply with this limit (paragraph 13 of Schedule 1 to the Credit Unions Act 1979). | |||
| A non-qualifying member is a person who has ceased to fulfil the membership qualification; that is to say a person who: | |||
| (a) | joined the credit union as a qualifying member (whether qualifying directly or indirectly); but | ||
| (b) | later ceased to qualify (section 5(5) of the Credit Unions Act 1979). | ||
| Note: | When directly qualifying members become non-qualifying members, then all members who qualified indirectly through them will also become non-qualifying members (unless subsequently by some other route they have themselves become either directly qualifying members or indirectly qualifying members). A person who is eligible for membership under more than one category will hold membership under the higher of those categories (so, for example, someone who is eligible under Categories 1 and 2 will be regarded as a Category 1 member, and someone who is eligible under Categories 2 and 3 will be regarded as a Category 2 member). | ||
| Category of Membership | |||
| Category 1 | Category 2 | Category 3 | |
| Directly qualifying member | Indirectly qualifying member ("family member") | Non-qualifying member | |
| DQM | IQM | NQM | |
| Fulfils the membership qualification set out in the common bond rule of the credit union | Lives in the same household as, and is a relative of, a DQM | Has ceased to be a DQM or IQM | |
| Persons too young to be members | |||
| 3. | A person too young to be a member ("juvenile depositor") may make deposits with a credit union (section 9 of the Credit Unions Act 1979). A person too young to be a member ("juvenile depositor") is a person who: | ||
| (1) | is below the age of 16 (unless the credit union's registered rules stipulate a higher age for entry) (section 20 of the Industrial & Provident Societies Act 1965); and | ||
| (2) | would qualify for membership (directly or indirectly) if he were old enough. | ||
| This means that in a qualification of residing in a particular locality, an eligible juvenile depositor should reside there (because indirect qualification means being a member of the same household as well as a relative of a DQM). In a qualification of being employed in a particular locality, a juvenile depositor is eligible by going to school or college there. | |||
| Note: | These deposit's are not shares and these depositors are not members. | ||
| 3A | Section 9 of the Credit Unions Act 1979 does not require a juvenile depositor to cease to hold an account in a credit union if his parents become non-qualifying members. | ||
| Status of transactions | |||
| 4. | Credit union's may only undertake the activities authorised by their registered rules. If they purport to undertake wider activities, then any transactions arising from such activities are void. Any transactions with an ineligible person are unenforceable. | ||
| 5. | If a credit union becomes aware that it has admitted ineligible persons as "members", it should immediately take steps to: | ||
| (1) | reclaim any loans made to such persons; and | ||
| (2) | repay to such persons any sums they have deposited with the credit union by way of share purchase. | ||
| 6. | There are legal rights - such as the doctrine of unjust enrichment - that should enable a credit union to recover funds lent to such persons. Similar principles should apply to enable such persons to recover any funds deposited with the credit union. | ||
| 7. | If a credit union discovers that it has admitted to membership a significant number of ineligible persons, it should inform the FSA at the earliest opportunity to discuss the implications and the way forward. | ||
| Extension of common bond | |||
| 8. | Transactions with an ineligible person are not validated if that person subsequently becomes eligible for membership through, say, an extension of the common bond. Although a newly registered common bond extension allows a credit union to admit members in the additional area, it does not have retrospective effect for those who were erroneously admitted before the extension. If funds are not to be returned in accordance with the guidance given under "Status of Transactions" (paragraphs 4 to 7), immediate steps will have to be taken to ensure that proper business relations commence - and are shown to commence - after the common bond extension has been effected. The following steps should generally be taken: | ||
| (1) | the credit union should issue a new pass book; | ||
| (2) | share deposits and loans should be started again - stating the current position - being entered as new transactions in the new passbook. | ||
| Powers available under other Acts | |||
| 9. | This annex draws attention to a number of offences under the Industrial & Provident Societies Act 1965 and the Credit Unions Act 1979. The existence of these offences does not preclude the FSA from using any other powers that are available to it under the Act. | ||
| 10. | A credit union, officer, member or other person who does anything forbidden by credit union legislation is liable on summary conviction to a fine not exceeding level 3 on the standard scale (currently £1,000) (section 61(b) of the Industrial & Provident Societies Act 1965 and section 28(1) of the Credit Unions Act 1979). | ||
| 11. | The registration of a credit union may be cancelled on proof that it has wilfully and after notice from the FSA violated any of the provisions of the Industrial & Provident Societies Act 1965 or Credit Unions Act 1979 (section 20 of the Credit Unions Act 1979). | ||
- 01/01/2006
- Past version of CRED 13 before 01/01/2006
CRED 14
Supervision
CRED 14.1
The FSA's approach to supervision
- 01/12/2004
Application and purpose
CRED 14.1.1
See Notes
This
section and SUP 1 apply to all credit unions.
- 01/12/2004
CRED 14.1.2
See Notes
This section is a summary of SUP 1.
- 01/12/2004
CRED 14.1.3
See Notes
CRED 14.1.4
See Notes
The design of these arrangements is shaped by the regulatory objectives. These are set out in section 2 of the Act (The Authority's general duties) and are:
- (1) maintaining confidence in the financial system;
- (2) promoting public understanding of the financial system;
- (3) securing the appropriate degree of protection for consumers; and
- (4) reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.
CRED 14.1.5
See Notes
In designing its approach to supervision,
the FSA has
had regard to the principles of good regulation set out in section 2(3) of
the Act. In
particular, the FSA's regulatory
approach aims to focus and reinforce the responsibility of the management
of each credit union to
ensure that it takes reasonable care to organise and control the affairs of
the credit union responsibly
and effectively, and develops and maintains adequate risk management systems.
It is the responsibility of management to ensure that the credit union acts in compliance with its
regulatory requirements. The FSA will
have regard to the principle that a burden or restriction should be proportionate
to the benefits which are expected to result from it.
- 01/12/2004
The FSA's risk based approach to supervision
CRED 14.1.6
See Notes
The purpose of taking a risk-based approach
to supervision is to focus the FSA's resources
on the mitigation of risks to its regulatory
objectives, and to have regard to the need to use the FSA's resources in the
most efficient and economic way. The approach to risk assessment of credit unions is based
on both the impact of such risks were they to crystallise and the probability
of their doing so.
- 01/12/2004
Tools of supervision
CRED 14.1.7
See Notes
In order to meet the regulatory objectives and address identified
risks to those objectives, the FSA has
a range of supervisory tools available to it.
- 01/12/2004
CRED 14.1.8
See Notes
The FSA classifies these tools under four headings:
- (1) diagnostic: designed to identify, assess and measure risks;
- (2) monitoring: to track the development of identified risks, wherever these arise;
- (3) preventative: to limit or reduce identified risks and so prevent them crystallising or increasing; and
- (4) remedial: to respond to risks when they have crystallised.
- 01/12/2004
CRED 14.1.9
See Notes
The FSA uses a variety of tools to monitor whether a credit union remains in compliance with regulatory requirements. These tools include:
- (1) desk-based reviews;
- (2) liaison with other agencies or regulators;
- (3) meetings with management and other representatives of a credit union;
- (4) on-site inspections;
- (5) reviews and analysis of periodic returns and notifications;
- (6) reviews of past business;
- (7) use of auditors;
- (8) use of skilled persons.
- 01/12/2004
CRED 14.1.10
See Notes
The FSA also uses a variety of tools to address specific risks identified in credit unions. These tools include:
- (1) making recommendations for preventative or remedial action;
- (2) setting individual requirements;
- (3) giving individual guidance to a credit union;
- (4) varying a credit union's permission.
- 01/12/2004
CRED 14.1.11
See Notes
- 01/12/2004
CRED 14.2
Information gathering by the FSA on its own initiative
- 01/12/2004
Application and purpose
CRED 14.2.1
See Notes
This section and SUP 2 apply to all credit
unions.
- 01/12/2004
CRED 14.2.2
See Notes
The section is a summary of SUP
2.
- 01/12/2004
CRED 14.2.3
See Notes
Achieving its regulatory objectives involves the FSA informing itself of
developments in credit
unions. The Act requires
the FSA to
monitor a credit union's compliance
with requirements imposed by or under the Act. For this purpose, the FSA needs to have access to a broad range
of information about a credit
union's business.
- 01/12/2004
CRED 14.2.4
See Notes
The FSA receives
information through a variety of means, including regular reporting by credit unions. This section
is concerned with the methods of information gathering that the FSA may use on its own
initiative.
- 01/12/2004
CRED 14.2.5
See Notes
SUP 2.1.5 G states that the FSA has statutory powers, including:
- (1) to require the provision of information;
- (2) to require reports from skilled persons;
- (3) to appoint investigators; and
- (4) to apply for a warrant to enter premises.
- 01/12/2004
CRED 14.2.6
See Notes
The FSA prefers
to discharge its supervisory functions by working in an open and cooperative
relationship with credit
unions. The FSA will
look to obtain information in that way unless this will not achieve the necessary
results, in which case it will use its statutory powers.
- 01/12/2004
Information gathering by the FSA on its own initiative: background
CRED 14.2.7
See Notes
SUP 2.2.1 G states that failure to cooperate with the FSA makes a credit union liable to regulatory sanctions, including discipline under the Act. But this:
- (1) is not a criminal offence;
- (2) cannot lead to a person being treated as if in contempt of court.
- 01/12/2004
CRED 14.2.8
See Notes
- 01/12/2004
Information gathering by the FSA on its own initiative: cooperation by credit unions
CRED 14.2.9
See Notes
SUP 2.3.1 G sets out the various methods of information gathering that the FSA will use on its own initiative which require the cooperation of credit unions:
- 01/12/2004
CRED 14.2.10
See Notes
The FSA expects
to be able to give reasonable notice to a credit union when it seeks information, documents, meetings or
access to business premises. On rare occasions, however, the FSA may make unannounced
visits.
- 01/12/2004
CRED 14.2.11
See Notes
SUP 2.3.3 G - SUP 2.3.4 G state how the FSA considers that a credit union should cooperate in providing access to its documents and personnel:
- (1) make itself readily available for meetings as reasonably requested;
- (2) give access to any records, files, tapes or computer systems which are within its possession or control, and provide any facilities that are reasonably required;
- (3) produce specified documents, files, tapes, computer data;
- (4) print information which is held on computer or microfilm or otherwise convert it into a readily legible document;
- (5) permit copying of documents or other material on its premises at its reasonable expense;
- (6) answer truthfully, fully and promptly all questions which are reasonably put to it.
- 01/12/2004
CRED 14.2.12
See Notes
SUP 2.3.5 R states
that a credit union must
permit access, with or without notice, during reasonable business hours to
its business premises in relation to the discharge of the FSA's functions under the Act. It must also take reasonable steps to
ensure that others, such as agents and suppliers under material outsourcing arrangements permit
such access to their business premises.
- 01/12/2004
"Mystery Shopping"
CRED 14.2.13
See Notes
Representatives or appointees of the FSA (which may include
individuals engaged by a market research firm) may approach a credit union in the role
of potential members. This is known as "mystery shopping". The FSA expects that any "mystery
shopping" it arranges will be conducted in accordance with the Market Research
Society Code of Practice.
The FSA may use the information
it obtains from mystery shopping in support of both its supervisory functions
and its enforcement functions. This includes sharing any information so obtained
with firms and approved persons. (See SUP 2.4.1 G -
SUP 2.4.5 G
).
CRED 14.3
Auditors
- 01/12/2004
Application and purpose
CRED 14.3.1
See Notes
This section and SUP 3 apply to all credit
unions and their external auditors appointed under SUP
3.3.
- 01/12/2004
CRED 14.3.2
See Notes
This section is a summary of SUP
3, and sets out guidance on
the role auditors play in the FSA's monitoring
of credit unions' compliance
with the requirements and standards under the regulatory system.
- 01/12/2004
Appointment of auditors
CRED 14.3.3
See Notes
SUP 3.3.2 R states that a credit union must:
- (1) appoint an auditor to undertake the duties and responsibilities set out in SUP 3.8 (summarised in CRED 14.3.22 GCRED 14.3.31 G);
- (2) notify the FSA, without delay, when it is aware that a vacancy in the office of auditor will arise or has arisen, giving the reason for the vacancy;
- (3) appoint an auditor to fill any vacancy in the office of auditor which has arisen;
- (4) ensure that the replacement auditor can take up office at the time the vacancy arises or as soon as is reasonably practicable after that; and
- (5) notify the FSA of the appointment of an auditor, advising the FSA of the name and business address of the auditor appointed and the date from which the appointment has effect.
- 01/12/2004
CRED 14.3.4
See Notes
A credit
union is also under an obligation to appoint an auditor under
the Friendly and Industrial and Provident Societies Act 1968, but a single
auditor may be appointed for both purposes (See CRED 14 Annex 1 G).
- 01/12/2004
Auditors' qualifications
CRED 14.3.5
See Notes
SUP 3.4 sets
out rules and guidance aimed at ensuring
that the auditor of a credit
union has the necessary skill and experience.
- 01/12/2004
CRED 14.3.6
See Notes
SUP 3.4.2 R states
that before a credit union appoints
an auditor, it must take reasonable steps to ensure that the auditor has the
required skill, resources and experience to perform his functions under the regulatory system and
that the auditor is eligible under Friendly and Industrial and Provident Societies
Act 1968.
- 01/12/2004
CRED 14.3.7
See Notes
SUP 3.4.5 R states
that a credit union should
have regard to whether its proposed auditor has expertise in the relevant
requirements and standards, and possesses or has access to appropriate specialist
skill. The credit union should
seek confirmation of this from the auditor concerned.
- 01/12/2004
CRED 14.3.8
See Notes
A credit
union must not appoint as auditor a person who is disqualified by the FSA under section 345
of the Act (Disqualification)
from acting as an auditor either for that credit union or credit unions in general.
- 01/12/2004
CRED 14.3.9
See Notes
If it appears to the FSA that the auditor of a credit union has failed to comply with a
duty imposed on him under the Act,
it may disqualify him under section 345 of the Act.
- 01/12/2004
CRED 14.3.10
See Notes
SUP 3.4.7 R states
that a credit union must
take reasonable steps to ensure that an auditor, which it is planning to appoint
or has appointed, provides information to the FSA about the auditor's qualifications, skills,
experience and independence in accordance with the reasonable requests of
the FSA.
- 01/12/2004
CRED 14.3.11
See Notes
To enable it to assess the ability of
an auditor to audit a credit
union, the FSA may
seek information about the auditor's relevant experience and skill.
- 01/12/2004
Auditors' independence
CRED 14.3.12
See Notes
If an auditor is to carry out his duties
properly, he needs to be independent of the credit union he is auditing, so that he is
not subject to conflicts of interest.
- 01/12/2004
CRED 14.3.13
See Notes
SUP 3.5.2 R requires
a credit union to
take reasonable steps to ensure that the auditor it appoints is independent
of the credit union.
- 01/12/2004
CRED 14.3.14
See Notes
If a credit union becomes aware at any time that
its auditor is not independent of the credit
union, it must take reasonable steps to ensure that it has an
auditor independent of the credit
union. The credit
union must notify the FSA if
independence is not achieved within a reasonable time.
- 01/12/2004
CRED 14.3.15
See Notes
The FSA will
regard an auditor as independent if his appointment or retention does not
breach the ethical guidance in current issue from the auditor's recognised
supervisory body on the appointment of an auditor in circumstances which could
give rise to conflicts of interest.
- 01/12/2004
Credit unions' cooperation with their auditors
CRED 14.3.16
See Notes
SUP 3.6.1 R states
that a credit union must
cooperate with its auditor in the discharge of his duties under that chapter.
- 01/12/2004
CRED 14.3.17
See Notes
In complying with SUP 3.6.1 R, a credit union should
include giving a right of access at all times to the credit union's accounting and other records,
in whatever form they are held, and documents relating
to its business. A credit
union should allow its auditor to copy documents or other material on the premises
of the credit union and
to remove copies or hold them elsewhere, or give him such copies on request.
- 01/12/2004
CRED 14.3.18
See Notes
Section 341 of the Act (Access to Books etc) provides that an auditor of a credit union appointed under SUP 3.3.2 R:
- (1) has a right of access at all times to the credit union's books, accounts and vouchers; and
- (2) is entitled to require from the credit union's officers such information and explanation as he reasonably considers necessary for the performance of his duties as auditor.
- 01/12/2004
CRED 14.3.19
See Notes
Credit
unions and their officers and managers are reminded
that, under section 346 of the Act (Provision
of false or misleading information to auditor or Actuary), knowingly or recklessly giving false
information to an auditor appointed under SUP 3.3.2 R constitutes
an offence in certain circumstances, which could render them liable to prosecution.
This applies regardless of whether an auditor is also appointed under the
Friendly and Industrial and Provident Societies Act 1968.
- 01/12/2004
Notification of matters raised by auditor
CRED 14.3.20
See Notes
A credit
union should consider whether it should notify the FSA in accordance with CRED
14.9.3 G if it expects or knows
its auditor will qualify its report on the audited financial statements or
add an explanatory paragraph.
- 01/12/2004
CRED 14.3.21
See Notes
A credit
union should consider whether it should notify the FSA in accordance with CRED
14.9.3 G if it receives a written communication from its
auditor commenting on internal
controls.
- 01/12/2004
Rights and duties of all auditors
CRED 14.3.22
See Notes
The auditor of a credit union has various rights and duties
to obtain information from the credit
union.
- 01/12/2004
CRED 14.3.23
See Notes
SUP 3.8.2 R states
that an auditor of a credit
union must cooperate with the FSA in the discharge of its functions under
the Act.
- 01/12/2004
CRED 14.3.24
See Notes
The FSA may
ask the auditor to attend meetings and to supply it with information about
the credit union.
- 01/12/2004
CRED 14.3.25
See Notes
SUP 3.8.4 R states
that an auditor of a credit
union must give any skilled
person appointed by the credit
union all assistance that that person reasonably requires.
- 01/12/2004
CRED 14.3.26
See Notes
SUP 3.8.5 R states
that the auditor must be independent of a credit union in performing his duties in
respect of that credit
union.
- 01/12/2004
CRED 14.3.27
See Notes
SUP 3.8.6 R states
the auditor must take reasonable steps to satisfy himself that he is free
from any conflict of interest from which bias may reasonably be inferred.
He must take appropriate action where this is not the case.
- 01/12/2004
CRED 14.3.28
See Notes
Within the legal constraints that apply,
the FSA may
pass on to an auditor any information which it considers relevant to his function.
An auditor is bound by the confidentiality provisions set out in Part XIII
of the Act (Public
record, disclosure of information and cooperation) in respect of confidential
information he receives from a credit
union or other person.
An auditor may not pass on confidential information without lawful authority.
- 01/12/2004
CRED 14.3.29
See Notes
Auditors are subject to regulations made
by the Treasury obliging them to report certain matters to the FSA. An auditor does not
contravene any duty by giving information or expressing an opinion to the FSA, if he is acting in
good faith and he reasonably believes that the information or opinion is relevant
to any function of the FSA.
These provisions continue to have effect after the end of the auditor's term
of appointment.
- 01/12/2004
CRED 14.3.30
See Notes
SUP 3.8.11 R states that an auditor must notify the FSA without delay if he:
- (1) is removed from office by a credit union; or
- (2) resigns before his term of office expires; or
- (3) is not re-appointed by a credit union.
- 01/12/2004
CRED 14.3.31
See Notes
SUP 3.8.12 R states that if an auditor ceases to be, or is formally notified that he will cease to be, the auditor of a credit union, he must notify the FSA without delay:
- (1) of any matter connected with his ceasing which he thinks ought to be drawn to the FSA's attention; or
- (2) that there is no such matter.
- 01/12/2004
CRED 14.4
Skilled persons
- 01/12/2004
Application and purpose
CRED 14.4.1
See Notes
This section and SUP 5 apply to all credit
unions.
- 01/12/2004
CRED 14.4.2
See Notes
The purpose of this section is to summarise SUP 5, which gives guidance on
the FSA's use
of the power in section 166 of the Act (Reports
by skilled persons).
- 01/12/2004
The FSA's power
CRED 14.4.3
See Notes
SUP 5.2 explains
that the FSA may,
by giving written notice, require a credit
union to provide it with a report by a skilled person.
- 01/12/2004
Policy on the use of skilled persons
CRED 14.4.4
See Notes
SUP 5.3 explains
the FSA's policy
on the use of skilled
persons. The FSA will
have regard to all relevant factors, including the circumstances of the credit union, the availability
of alternative tools and the cost implications for the credit union (which would have to pay for
the services of the skilled
person).
- 01/12/2004
Appointment and reporting process
CRED 14.4.5
See Notes
SUP 5.4 explains
the appointment and reporting process. The FSA will send to a credit union a notice requiring it to provide
a report by a skilled
person, and give written notification of the report's purpose,
scope, and timetable. The FSA will
normally seek to agree with the credit
union in advance which skilled
person (whether accountant, lawyer or other person with relevant skills) will make the
report.
- 01/12/2004
Duties of a credit union
CRED 14.4.6
See Notes
SUP
5.5.1 R and SUP
5.5.5 R set out what is required in the contract between
the credit union and
the skilled person.
- 01/12/2004
CRED 14.4.7
See Notes
SUP
5.5.11 G states
that a credit union must
provide all reasonable assistance to the skilled
person.
- 01/12/2004
Confidential information privilege
CRED 14.4.8
See Notes
SUP 5.6 explains
what confidentiality provisions apply when the FSA passes on relevant information to a skilled person.
- 01/12/2004
CRED 14.5
Applications to vary or cancel Part IV permission
- 01/12/2004
Application and purpose
CRED 14.5.1
See Notes
This section and SUP 6 apply to all credit unions with a Part IV permission that wish to;
- (1) vary their Part IV permission; or
- (2) cancel their Part IV permission and end their authorisation.
- 01/12/2004
CRED 14.5.2
See Notes
This section is a summary of SUP
6.
- 01/12/2004
CRED 14.5.3
See Notes
This section explains:
- (1) how a credit union can apply to vary or cancel its Part IV permission;
- (2) the additional procedures that apply to a credit union that needs to wind down its business over a long time period (usually more than six months);
- (3) how the FSA assesses those applications.
- 01/12/2004
CRED 14.5.4
See Notes
A version
1 credit union that wishes to become a version 2 credit union will need to apply
to vary it's Part IV permission.
- 01/12/2004
Introduction
CRED 14.5.5
See Notes
A credit
union authorised under
Part IV of the Act (Permission to carry on regulated activities)
has a single permission granted
by the FSA,
which contains a description of the activities the credit union may carry on, including any limitations.
- 01/12/2004
Applications for variation of permission
CRED 14.5.6
See Notes
- 01/12/2004
CRED 14.5.7
See Notes
SUP 6.3.15 D states
that the application must be in writing and addressed and delivered in the
way set out in SUP 15.7.4 R - SUP 15.7.6 G (summarised in CRED
14.9.19 G).
- 01/12/2004
CRED 14.5.8
See Notes
A credit
union is advised to discuss its application with the Credit
Union team at the FSA before
submission, particularly if it is seeking a variation of permission within a short time scale. It
is also advised to include as much detail as possible with its application.
A version 1 credit union that
wishes to become a version
2 credit union will typically need to supply information on
the matters referred to in CRED
13.6.2 G.
- 01/12/2004
CRED 14.5.9
See Notes
The FSA,
as soon as possible after receipt of an application, will advise the credit union of any additional
information which is required as part of its application. The amount of information
that the FSA will
require will vary depending on the nature of the variation.
- 01/12/2004
CRED 14.5.10
See Notes
The FSA may
refuse the application if it appears that the interests of members would be
adversely affected if the application were to be granted.
- 01/12/2004
CRED 14.5.11
See Notes
- 01/12/2004
CRED 14.5.12
See Notes
- 01/12/2004
CRED 14.5.13
See Notes
Within these time limits, however, the
length of the process will vary according to the complexity of the variation
requested.
- 01/12/2004
CRED 14.5.14
See Notes
- 01/12/2004
Applications for cancellation of permission
CRED 14.5.15
See Notes
- 01/12/2004
CRED 14.5.16
See Notes
The FSA may refuse such an application if it appears that:
- (1) the interests of members, or potential members, would be adversely affected; and
- (2) it is desirable in the interests of members or potential members for the application to be refused.
- 01/12/2004
CRED 14.5.17
See Notes
SUP 6.4.5 D states
that if a credit union wishes
to cancel its permission,
it must write to the FSA giving
the reasons and the date on which the credit
union has ceased or expects to cease carrying on regulated activities.
The credit union must
explain the full circumstances of its application.
- 01/12/2004
CRED 14.5.18
See Notes
SUP 6.4.5 D states
that a credit union's application
for cancellation of its permission must
be given to a member of, or addressed for the attention of, the Corporate
Authorisation Resignation team at the FSA.
- 01/12/2004
CRED 14.5.19
See Notes
The credit
union's usual supervisory contact at the FSA will, however, be responsible for all
day-to-day contact with the credit
union and for assessing the application.
- 01/12/2004
CRED 14.5.20
See Notes
When it receives this application, the
Corporate Authorisation Resignation team will send the credit union a written acknowledgement. This
acknowledgement will explain the cancellation process and detail the information
required as part of the application.
- 01/12/2004
CRED 14.5.21
See Notes
The FSA may
request confirmation from the credit
union that there are no unresolved, unsatisfied or undischarged
complaints against the credit
union from a member.
- 01/12/2004
CRED 14.5.22
See Notes
SUP 6.4.14 G states
that it is an offence for a person knowingly
or recklessly to give the FSA information
that is false or misleading. If necessary a credit union should take appropriate professional
advice when supplying information required by the FSA.
- 01/12/2004
CRED 14.5.23
See Notes
The FSA may
require additional information, including professional advice where it considers
this appropriate.
- 01/12/2004
CRED 14.5.24
See Notes
The FSA will usually not cancel a credit union's permission until the credit union can demonstrate that it has:
- (1) ceased carrying on regulated activities;
- (2) repaid all shares and deposits;
- (3) discharged, satisfied or resolved complaints against the credit union.
- 01/12/2004
CRED 14.5.25
See Notes
In deciding whether to cancel a credit union's permission, the FSA will take into account all relevant factors in relation to business carried on under that permission, including those set out in SUP 6.4.22 G.
- 01/12/2004
CRED 14.5.26
See Notes
If the FSA has granted an application for cancellation
of permission and
withdrawn a credit union's status
as an authorised person,
it will retain certain investigative and enforcement powers in relation to
the credit union,
including those set out in SUP 6.4.23.
- 01/12/2004
CRED 14.5.27
See Notes
- 01/12/2004
CRED 14.5.28
See Notes
Within these time limits, however, the
length of the process will vary according to the complexity of the circumstances.
- 01/12/2004
Ending authorisation
CRED 14.5.29
See Notes
If the FSA cancels a credit union's permission, leaving it without permission to carry out a regulated activity, the FSA is required to withdraw the credit union's authorisation.
- 01/12/2004
Additional guidance
CRED 14.5.30
See Notes
SUP 6 Annex 4 provides
additional guidance for
a credit union winding
down (running off) its business.
- 01/12/2004
CRED 14.5.31
See Notes
If a credit union requires a long term period
(usually in excess of six months)
in which to wind down (run off) its business, it will usually be appropriate
for it to apply for a variation in its permission.
- 01/12/2004
CRED 14.5.32
See Notes
A credit
union should discuss its plans with its usual supervisory contact
at the FSA.
- 01/12/2004
CRED 14.5.33
See Notes
- 01/12/2004
CRED 14.5.34
See Notes
The annexes to CRED 15 provide tables setting out the FSA's enforcement powers, including
those to cancel or suspend registration, vary or cancel permission and withdraw authorisation.
- 01/12/2004
CRED 14.6
Individual requirements
- 01/12/2004
Application and purpose
CRED 14.6.1
See Notes
This section and SUP 7 apply to all credit
unions.
- 01/12/2004
CRED 14.6.2
See Notes
This section is a summary of SUP 7.
- 01/12/2004
CRED 14.6.3
See Notes
The FSA's Handbook primarily contains
provisions that apply to all credit
unions. However, the FSA may
judge it necessary or desirable to impose additional requirements on a credit union or amend the activities it has permission to undertake.
Doing so enables the FSA to
take account of a credit
union's individual circumstances and assists the FSA in meeting its regulatory objectives.
- 01/12/2004
The FSA's powers to set individual requirements on its own initiative
CRED 14.6.4
See Notes
The FSA may vary a credit union's Part IV permission on its own initiative where:
- (1) one or more of the threshold conditions is, or is likely to be, no longer satisfied;
- (2) it is desirable in order to protect members.
CRED 14.6.5
See Notes
If the FSA exercises its powers, it will do so by
issuing a supervisory
notice.
- 01/12/2004
CRED 14.6.6
See Notes
A credit
union may refer this decision to the
Financial
Services and Markets Tribunal.
Criteria for varying a credit union's permission
CRED 14.6.7
See Notes
The FSA expects to maintain a close working relationship with credit unions and expects that routine supervisory matters can be resolved by issuing guidance. However, the FSA may seek to vary a credit union's permission:
- (1) if it is appropriate to act formally so that enforcement action can be taken if necessary;
- (2) so that a credit union can comply without breaking agreements with third parties.
- 01/12/2004
CRED 14.6.8
See Notes
The FSA may seek to vary on its own initiative a permission if risks are presented by:
- (1) a credit union's management, business or internal controls;
- (2) its involvement in new products or selling practices;
- (3) a change in its structure, activities or strategy.
- 01/12/2004
CRED 14.6.9
See Notes
The following are some of the requirements or limitations that may be imposed:
- (1) submission of reports;
- (2) maintenance of prudential limits;
- (3) submission of business plan;
- (4) limitation of activities;
- (5) maintenance of financial resources.
- 01/12/2004
CRED 14.6.10
See Notes
The FSA will
seek to give reasonable notice of intent to vary a permission and to agree an appropriate time
scale with the credit union.
However, the FSA may
act immediately if that is necessary to protect members.
- 01/12/2004
CRED 14.7
Waiver and modification of rules
- 01/12/2004
Application and purpose
CRED 14.7.1
See Notes
This section and SUP 8 apply to all credit
unions that wish to apply for, or to consent to, or have been
given a modification of or waiver of
the FSA's rules.
- 01/12/2004
CRED 14.7.2
See Notes
- 01/12/2004
Introduction
CRED 14.7.3
See Notes
The FSA may, on the application or with the consent of a credit union, direct that certain rules:
- (1) are not to apply to the credit union; or
- (2) are to apply to the credit union with such modifications as may be specified.
CRED 14.7.4
See Notes
- 01/12/2004
Applying for a waiver
CRED 14.7.5
See Notes
- 01/12/2004
CRED 14.7.6
See Notes
SUP 8.3.3 states that if a credit union wishes to apply for a waiver, it must do so to its usual supervisory contact at the FSA using the form in SUP 8 Annex 2 (Application for a waiver or modification).
- (1) [Deleted]
- (2) [Deleted]
- (3) [Deleted]
- (4) [Deleted]
- (5) [Deleted]
- (6) [Deleted]
- (7) [Deleted]
- 01/12/2004
CRED 14.7.7
See Notes
- 01/12/2004
CRED 14.7.8
See Notes
- 01/12/2004
CRED 14.7.10
See Notes
If the FSA considers that the waiver should apply to a number of credit unions, it will
inform them that the waiver is
available. To take advantage of the waiver,
they will only have to give their written consent rather than making a formal
application.
- 01/12/2004
Notification of altered circumstances relating to waivers
CRED 14.7.11
See Notes
SUP 8.5.10R
states that if a credit
union becomes aware that a waiver is
no longer relevant or appropriate, it must notify the FSA immediately.
- 01/12/2004
Publication of waivers
CRED 14.7.12
See Notes
- 01/12/2004
CRED 14.7.13
See Notes
In deciding whether or not to publish, the FSA will take into account whether:
- (1) it will be prejudicial to the commercial interests of the credit union;
- (2) it relates to a minor matter that does not affect a third party and is unlikely to be of interest to other credit unions.
- 01/12/2004
CRED 14.7.14
See Notes
If the FSA decides upon publication, it will give
the credit union the
opportunity of avoiding this by withdrawing its application.
- 01/12/2004
Varying waivers
CRED 14.7.15
See Notes
If a credit union wishes the FSA to vary a waiver, it should follow the procedures
in SUP
8.3.3 (summarised in CRED
14.7.6 G).
- 01/12/2004
Revoking waivers
CRED 14.7.16
See Notes
- 01/12/2004
CRED 14.7.17
See Notes
- 01/12/2004
CRED 14.7.18
See Notes
Where the revocation is immediate, the FSA will also give the credit union the opportunity
to make representations. After considering these, it will either confirm the
revocation or seek the credit
union's consent to a new waiver.
- 01/12/2004
Decision making
- 01/12/2004
CRED 14.8
Individual guidance
- 01/12/2004
Application and purpose
CRED 14.8.1
See Notes
- 01/12/2004
CRED 14.8.2
See Notes
This section is a summary of SUP
9.
- 01/12/2004
CRED 14.8.3
See Notes
- 01/12/2004
Making a request for individual guidance
CRED 14.8.4
See Notes
Requests may be either oral or written.
- 01/12/2004
CRED 14.8.5
See Notes
Requests for individual guidance should be directed
to the credit unions usual
supervisory contact at FSA in
the first instance. A written request will be necessary where the issue is
complex or significant. A credit
union should have taken reasonable steps to analyse the issue
before approaching the FSA.
- 01/12/2004
CRED 14.8.6
See Notes
The FSA will
aim to respond quickly and fully to reasonable requests, but complex or novel
issues may take more time. Credit
unions should try to make allowance for this.
- 01/12/2004
Giving individual guidance to a credit union on the FSA's own initiative
CRED 14.8.7
See Notes
The FSA may
issue individual guidance to credit unions on its own
initiative where it is appropriate to do so.
- 01/12/2004
CRED 14.8.8
See Notes
An example of this is where general guidance in the Handbook does not fit
the credit union's particular
circumstances or more detailed guidance is
required.
- 01/12/2004
Reliance on individual guidance
- 01/12/2004
CRED 14.8.10
See Notes
- 01/12/2004
CRED 14.8.11
See Notes
- 01/12/2004
CRED 14.8.12
See Notes
The extent to which a person can rely on individual guidance to him will depend
on many factors. These could include, for example, the degree of formality
of the original query and the guidance given,
and whether all relevant information was submitted with the request. Individual guidance is usually given
in relation to a set of particular circumstances which exist when the guidance is given. If
the circumstances later change, for example, because of a change in the circumstances
of the person or
a change in the underlying rule or
other requirement, and the premises upon which individual guidance was given no longer apply, the guidance will cease to
be effective.
- 01/12/2004
CRED 14.8.13
See Notes
- 01/12/2004
CRED 14.9
Notifications to the FSA
- 01/12/2004
Application and purpose
CRED 14.9.1
See Notes
This section and SUP 15 apply to all credit
unions in relation to both regulated
activities and unregulated
activities.
- 01/12/2004
CRED 14.9.2
See Notes
This section is a summary of SUP 15, which sets out:
- (1) guidance on the type of event or change in condition which a credit union should consider notifying to the FSA;
- (2) rules on events and changes that a credit union must notify;
- (3) rules on the core information that a credit union must provide;
- (4) rules requiring a credit union to ensure that information provided to the FSA is accurate and complete.
- 01/12/2004
General notification requirements
CRED 14.9.3
See Notes
SUP 15.3.1 R states that a credit union must notify the FSA immediately it becomes aware, or has information which reasonably suggests, that any of the following has occurred, may have occurred or may occur in the foreseeable future:
- (1) the credit union failing to satisfy one or more of the threshold conditions; or
- (2) any matter which could have a serious adverse impact on the credit union's reputation; or
- (3) any matter which could affect the credit union's ability to continue to provide adequate services to its members and which could result in serious detriment to a member; or
- (4) any matter in respect of the credit union which could result in serious financial consequences to the financial system or to other firms.
CRED 14.9.4
See Notes
Principle 11
requires a credit union to
deal with the FSA in
an open and cooperative way and to disclose what the FSA would normally expect to be disclosed.
- 01/12/2004
CRED 14.9.5
See Notes
Compliance with Principle 11 includes giving notice of:
- (1) any proposed restructuring, reorganisation or expansion which would have a significant impact on the risks run by the credit union;
- (2) any significant failure in the credit union's systems or controls, including those reported by the credit union's auditor;
- (3) any proposed action that could result in a material change to a credit union's capital adequacy or solvency.
- 01/12/2004
CRED 14.9.6
See Notes
The period of notice given depends on
the event, although the FSA expects
a credit union to
discuss relevant matters with it at an early stage before making commitments.
- 01/12/2004
CRED 14.9.7
See Notes
SUP 15.3.11 R states that a credit union must notify the FSA of the following immediately:
- (1) a significant breach of rule or Principle;
- (2) breach of requirement imposed by the Act, regulations or order;
- (3) the bringing of a prosecution for, or a conviction of, any offence under the Act involving the credit union, members of its committee of management, officers, employees or approved persons.
- 01/12/2004
CRED 14.9.8
See Notes
SUP 15.3.15 R states that a credit union must also notify the FSA immediately of the following:
- (1) civil proceedings against the credit union where the claim is significant to its resources or reputation;
- (2) action against the credit union under section 71 or 150 of the Act (actions for damages);
- (3) the credit union is prosecuted for, or convicted of, any offence involving fraud or dishonesty or any penalties are imposed upon it for tax evasion.
- 01/12/2004
CRED 14.9.9
See Notes
Notification should include details of
the matter and an estimate of the likely financial consequences.
- 01/12/2004
CRED 14.9.10
See Notes
SUP 15.3.17 R states that a credit union must notify the FSA immediately of the following events, if significant:
- (1) fraud by an officer against members;
- (2) fraud committed against the credit union;
- (3) irregularities in accounting or other records;
- (4) serious misconduct by officers concerning honesty or integrity.
- 01/12/2004
CRED 14.9.11
See Notes
In determining whether a matter is significant, a credit union should have regard to:
- (1) the size of any monetary loss;
- (2) reputational loss to the credit union;
- (3) weaknesses in the credit union's internal controls.
- 01/12/2004
CRED 14.9.12
See Notes
SUP 15.3.21 R states
that a credit union must
notify the FSA of
any legal steps involving the insolvency, bankruptcy or winding up of the credit union.
- 01/12/2004
Core information requirements
CRED 14.9.13
See Notes
SUP 15.5.1 R, SUP 15.5.4 R and SUP 15.5.6 G state that a credit union must provide the FSA with notice of:
- (1) change in name;
- (2) change in address;
- (3) change in legal structure.
- 01/12/2004
CRED 14.9.14
See Notes
Similar obligations to those in CRED
14.9.13 G are imposed by existing credit union legislation.
- 01/12/2004
Inaccurate, false or misleading information
CRED 14.9.15
See Notes
SUP
15.6.1 R states
that a credit union must
take reasonable steps to make sure that information given to the FSA is factually accurate
and complete.
- 01/12/2004
CRED 14.9.16
See Notes
SUP
15.6.4 R states
that a credit union must
notify the FSA if
it realises that information already provided may be false, misleading, incomplete
or inaccurate.
- 01/12/2004
CRED 14.9.17
See Notes
SUP
15.6.7 G states
that it is an offence to provide such information knowingly or recklessly.
- 01/12/2004
Form and method of notification
CRED 14.9.18
See Notes
SUP 15.7.1 R states
that a credit union should
provide notification in written English, preceded by oral notification if
the matter is urgent or significant.
- 01/12/2004
CRED 14.9.19
See Notes
SUP 15.7.4 R and SUP 15.7.5 R state that the notification should be addressed to the credit union's usual supervisory contact at the FSA using one of these methods:
- (1) by post to the FSA's address;
- (2) self delivery to FSA's address (and obtaining a dated receipt);
- (3) electronic mail to an address for the credit union's usual supervisory contact at the FSA and obtaining an electronic confirmation of receipt;
- (4) hand delivery to the credit union's usual supervisory contact at the FSA;
- (5) fax number to the credit union's usual supervisory contact at the FSA, followed by submission by one of the methods in CRED 14.9.19 G (1) - CRED 14.9.19 G (4).
- 01/12/2004
CRED 14.9.20
See Notes
SUP 15.7.10 R states
that notification should be within the period specified by the particular rule. If no period is
specified, the credit union should
act reasonably in deciding when to notify.
- 01/12/2004
CRED 14.10
Reporting requirements
- 01/12/2004
Application and purpose
CRED 14.10.1
See Notes
CRED 14.10.2
See Notes
This section is a summary of those parts
of SUP that
apply to every credit union.
- 01/12/2004
CRED 14.10.3
See Notes
In order to discharge its functions under
the Act, the FSA needs timely and accurate
information about credit
unions on a regular basis. The provision of this information
enables the FSA to
build up over time a picture of credit
unions' circumstances and behaviour.
- 01/12/2004
General provisions on reporting
CRED 14.10.4
See Notes
SUP 16.3.6 -SUP 16.3.13 state that a report must:
- (1) be in writing;
- (2) give the credit union's FSA reference number;
- (3) be given to or addressed for the attention of the credit union's usual supervisory contact at the FSA;
- (4) be delivered to the FSA by one of the following methods:
- (a) by post to The Financial Services Authority, PO Box 35747, London E14 SWP;
- (b) self delivery to The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS (and obtaining a dated receipt);
- (c) electronic mail to an address for the credit union's usual supervisory contact at the FSA and obtaining an electronic confirmation of receipt;
- (d) hand delivery to the credit union's usual supervisory contact at the FSA and obtaining a date receipt;
- (e) fax to the number notified by the credit union's usual supervisory contact at the FSA, followed by one of the methods in (a) - (d) within five business days after the date of the faxed submission.
- 01/12/2004
CRED 14.10.4A
See Notes
SUP
16.3.11 states that a credit union must submit reports to the FSA containing all the
information required.
- 01/12/2004
CRED 14.10.4B
See Notes
SUP 15.6 refers to and contains requirements regarding
the steps that credit unions must
take to ensure that information provided to the FSA is accurate and complete. Those requirements
apply to reports required to be submitted under SUP 16 (Reporting requirements).
- 01/12/2004
CRED 14.10.4C
See Notes
- (1) SUP 16.3.13 states that a credit union must submit a report in the frequency, and so as to be received by the FSA no later than the due date, specified for that report.
- (2) SUP 16.3.13 states that if the due date for submission of a report required by SUP 16 falls on a day which is not a business day the report must be submitted so as to be received by the FSA no later than the first business day after the due date.
- (3) SUP 16.3.13 states that if the due date for submission of a report required by SUP 16 is a set period of time after the quarter end, the quarter ends will be the following dates, unless another rule or the reporting form states otherwise:
- (a) the 'credit union's accounting reference date;
- (b) 3 months after the credit union's accounting reference date;
- (c) 6 months after the credit union's accounting reference date; and
- (d) 9 months after the credit union's accounting reference date.
- 01/12/2004
CRED 14.10.4D
See Notes
If a credit union fails to submit a complete annual report by the date on which it is due in accordance with the rules in SUP 16.12 and any prescribed submission procedures, the credit union must pay an administrative fee of £250 (see SUP 16.3.14 R). Failure to submit a report in accordance with the rules in SUP 16.12 may also lead to the imposition of a financial penalty and other disciplinary sanctions (see DEPP ).
CRED 14.10.4E
See Notes
The FSA may from time to time send reminders to credit unions when reports are overdue. Credit unions should not, however, assume that the FSA has received a report merely because they have not received a reminder.
- 01/12/2004
CRED 14.10.4F
See Notes
The credit union is responsible for ensuring delivery of the required report at the FSA's offices by the due date. If a report is received by the FSA after the due date and the credit union believes its delivery arrangements were adequate, it may be required to provide proof of those arrangements. Examples of such proof would be:
- (1) "proof of posting" receipts from a UK post office or overseas equivalent which demonstrate that the report was posted early enough to allow delivery by the due date in accordance with the delivery service standards prescribed by the relevant postal authority; or
- (2) recorded postal delivery receipts showing delivery on the required day; or
- (3) records of a courier service provider showing delivery on the required day.
- 01/12/2004
Change of accounting reference date
CRED 14.10.4G
See Notes
- (1) SUP 16.3.17 states that a credit union must notify the FSA if it changes its accounting reference date.
- (2) When a credit union extends its accounting period, it must make the notification in (1) before the previous accounting reference date.
- (3) When a credit union shortens its accounting period, it must make the notification in (1) before the new accounting reference date.
- 01/12/2004
CRED 14.10.4H
See Notes
CRED 14.10.3 G emphasises the importance to the FSA of timely and accurate information. The extension of a credit union's accounting period (as a result of a change of accounting reference date) to more than 15 months may hinder the timely provision of relevant and important information to the FSA, or its regularity. This is because some due dates for reporting to the FSA are linked to credit union's accounting reference dates. If the extension of a credit union's accounting period appears likely to impair the effectiveness of the FSA's supervisory work, the FSA may take action to ensure that it continues to receive the information it requires on a timely basis. This may include the use of any of the tools of supervision set out in CRED 14.1.9 G.
- 01/12/2004
Quarterly return
CRED 14.10.5
See Notes
SUP 16.12.5 R states that a credit union must submit
a quarterly return.
CRED 14.10.6
See Notes
- 01/12/2004
Annual return
CRED 14.10.7
See Notes
SUP 16.12.5 R
states that
a credit union must
submit an annual return.
CRED 14.10.8
See Notes
- 01/12/2004
CRED 14.10.8A
See Notes
The form may be updated from time to
time. Credit unions should
use the form in force at the end of the financial year on which they are reporting.
- 01/12/2004
Accounts and audit
CRED 14.10.9
See Notes
Credit unions are required
by the Friendly and Industrial and Provident Societies Act 1968 to publish
audited accounts. CRED 14 Annex 1 G contains
further information about these requirements.
- 01/12/2004
CRED 14.10.10
See Notes
- (1) Every credit union must send to the FSA a copy of its audited accounts published in accordance with section 3A of the Friendly and Industrial and Provident Societies Act 1968 (See CRED 14 Annex 1 G.)
- (2) The accounts must:
- (a) be made up for the period beginning with the date of the credit union's registration or with the date to which the credit union's last annual accounts were made up, whichever is the later, and ending on the credit union's most recent financial year end; and
- (b) accompany the annual return submitted to the FSA under SUP 16.12.5 R (see CRED 14.10.7 G), unless they have been submitted already.
CRED 14.10.11
See Notes
Every credit union must supply
free of charge to every member or person interested in the funds of the credit union who applies
for it a copy of the latest audited accounts of the credit union sent to the FSA under CRED
14.10.10 R.
- 01/12/2004
Financial penalties for late submission of reports
CRED 14.10.12
See Notes
- (1) Financial penalties may be imposed for the late submission of:
- (a) the quarterly and annual returns referred to in CRED 14.10.5 G and CRED 14.10.7 G; and
- (b) the audited accounts referred to in CRED 14.10.10 R.
- (2) Details of the FSA's policy and procedures on financial penalties are given in CRED 15.5 (Financial penalties for late submission of reports) and CRED 15 Annex 3 G.
- 01/12/2004
Controllers and close links
CRED 14.10.13
See Notes
- (1) Credit unions are subject to the requirements of the Act and SUP 11 on controllers and close links, and are bound to notify the FSA of changes. In practice, however, credit unions cannot develop such relationships, because:
- (a) only individuals may be members of a credit union (section 5(1) of the Credit Unions Act 1979);
- (b) every member is entitled to vote and has one vote only (section 5(9) of the Credit Unions Act 1979);
- (c) the minimum number of members of a credit union is 21 (section 6(1) of the Credit Unions Act 1979) and its registration may be cancelled if membership falls below that number (section 16(1)(a)(i) of the Industrial and Provident Societies Act 1968 and section 20(1)(a) of the Credit Unions Act 1979); and
- (d) a credit union may not have a subsidiary (section 26 of the Credit Unions Act 1979).
- (2) Credit unions are therefore exempted from the requirement to submit annual reports of controllers and close links (SUP 16.1.1, SUP 16.1.3, SUP 16.4.1G(-1)(-1) and SUP 16.5.1G(-1)).
- 01/12/2004
CRED 14 Annex 1
Accounts and audit - Friendly and Industrial and Provident Societies Act 1968
- 01/12/2004
See Notes
| Introduction | ||
| 1. | The Friendly and Industrial and Provident Societies Act 1968 applies to industrial and provident societies in general. The following is an outline of the main provisions relating to credit unions, which are a special type of industrial and provident society. | |
| Books of account | ||
| 2. | Section 1(1) of the Friendly and Industrial and Provident Societies Act 1968 provides that every credit union is to: | |
| (1) | cause to be kept proper books of account with respect to its transactions and its assets and liabilities; | |
| (2) | establish and maintain a satisfactory system of control of its books of account, its cash holdings and all its receipts and remittances. | |
| General provisions as to accounts and balance sheets | ||
| 3. | Section 3 of the Friendly and Industrial and Provident Societies Act 1968 provides that every revenue account and balance sheet of a credit union is to give a true and fair view. | |
| Publication of accounts | ||
| 4. | Section 3A of the Friendly and Industrial and Provident Societies Act 1968 provides that a credit union is not to publish any revenue account or balance sheet unless: | |
| (1) | it has been signed by the credit union's secretary and two members of its committee; | |
| (2) | it has been previously audited by the auditors; | |
| (3) | it incorporates a report by the auditors as to whether the revenue account and balance sheet give a true and fair view. | |
| Re-appointment and removal of qualified auditors | ||
| 5. | Section 5(1) of the Friendly and Industrial and Provident Societies Act 1968 provides that a qualified auditor appointed to audit the accounts and balance sheet for the preceding year of account is to be re-appointed as auditor for the current year of account unless: | |
| (1) | a resolution has been passed at a general meeting appointing somebody instead of him or providing expressly that he is not to be re-appointed; or | |
| (2) | he has given notice of his unwillingness to be re-appointed; or | |
| (3) | he is ineligible for appointment for the current year of account; or | |
| (4) | he has ceased to act as auditor by reason of incapacity. | |
| Obligation to appoint auditors | ||
| 6. | Section 4 of the Friendly and Industrial and Provident Societies Act 1968 provides that a credit union is to appoint a qualified auditor or auditors to audit the accounts and balance sheet unless: | |
| (1) | the aggregate of the receipts and payments in respect of the preceding year of account did not exceed £5,000; | |
| (2) | the number of members at the end of the preceding year did not exceed 500; and | |
| (3) | the aggregate value of assets at the end of that year did not exceed £5,000. | |
| 7. | If all these conditions apply, the credit union may appoint two or more lay auditors (subject to any direction given by the FSA). | |
| Qualified auditors | ||
| 8. | Section 7 of the Friendly and Industrial and Provident Societies Act 1968 provides that no person is a qualified auditor unless he is eligible for appointment as a company auditor under section 25 of the Companies Act 1989, that is to say a person who is registered with one of the five supervisory bodies recognised under the Companies Act 1989: | |
| (1) | the Institute of Chartered Accountants in England and Wales; | |
| (2) | the Institute of Chartered Accountants in Scotland; | |
| (3) | the Institute of Chartered Accountants in Ireland; | |
| (4) | the Chartered Association of Certified Accountants; and | |
| (5) | the Association of Authorised Public Accountants. | |
| Restrictions on appointment of auditors | ||
| 9. | Section 8 of the Friendly and Industrial and Provident Societies Act 1968 provides that none of the following persons is to be appointed as auditor of a credit union: | |
| (1) | an officer or servant of the credit union; | |
| (2) | a person who is a partner of, or in the employment of, or who employs an officer or servant of the credit union. | |
| Auditors' report | ||
| 10. | Section 9(2) of the Friendly and Industrial and Provident Societies Act 1968 provides that the audit report is to state whether the revenue account and the balance sheet comply with the requirements of the Friendly and Industrial and Provident Societies Act 1968 and the Industrial and Provident Societies Act 1965 and whether in the opinion of the auditors: | |
| (1) | the revenue account gives a true and fair view of the income and expenditure of the credit union as a whole for that year of account; and | |
| (2) | the balance sheet gives a true and fair view either of the assets and current liabilities of the credit union and the resulting balances of its funds or of the state of affairs of the credit union (as the case may require) as at the end of that year of account. | |
| 11. | Section 9(4) of the Friendly and Industrial and Provident Societies Act 1968 provides that it is the duty of the auditors to make such investigations as will enable them to form an opinion as to: | |
| (1) | whether the credit union has kept proper books of account in accordance with section 1(1)(a) of the Friendly and Industrial and Provident Societies Act 1968; | |
| (2) | whether the credit union has maintained a satisfactory system of control over its transactions in accordance with section 1(1)(b) of the Friendly and Industrial and Provident Societies Act 1968; | |
| (3) | whether the revenue account and other accounts to which the report relates, and the balance sheet are in agreement with the books of account of the credit union. | |
| 12. | Section 9(4) of the Friendly and Industrial and Provident Societies Act 1968 also provides that if the auditors are of the opinion that the credit union has failed to comply with section 1(1)(a) or (b) of the Friendly and Industrial and Provident Societies Act 1968, or if the revenue account, the other accounts and the balance sheet are not in agreement with the books of account of the credit union, the auditors are to state that fact in their report. | |
CRED 15
Decision procedure,
penalties and enforcement
CRED 15.1
Application and purpose
- 01/12/2004
CRED 15.1.1
See Notes
This chapter applies to credit unions and is intended to draw their attention to:
CRED 15.1.2
See Notes
The FSA's effective
and proportionate use of its investigation and enforcement powers plays an
important role in the pursuit of its regulatory
objectives.
- 01/12/2004
CRED 15.2
Industrial and Provident Societies legislation
- 28/08/2007
- Past version of CRED 15.2 before 28/08/2007
CRED 15.2.1
See Notes
The FSA's investigation
and enforcement powers in the Industrial and Provident Societies Act 1965,
the Friendly and Industrial and Provident Societies Act 1968 and the Credit
Unions Act 1979, although its main powers derive from the Act and the Unfair Terms Regulations.
- 01/12/2004
CRED 15.2.2
See Notes
For ease of reference:
- (1) Annex 1 to this chapter (CRED 15 Annex 1 G) contains a table of the FSA's investigation and enforcement powers under the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968 and the Credit Unions Act 1979.
- (2) [deleted]
CRED 15.3
Decision Procedure and Penalties manual
- 28/08/2007
- Past version of CRED 15.3 before 28/08/2007
CRED 15.3.1
See Notes
The Decision Procedure and Penalties manual (DEPP) is relevant to credit unions because it sets out:
- (1) the FSA's decision making procedure for giving statutory notices (warning notices, decision notices and supervisory notices); and
- (2) the FSA's policy with respect to the imposition and amount of penalties under the Act.
- (3) [deleted]
CRED 15.4
Enforcement Guide
- 28/08/2007
- Past version of CRED 15.4 before 28/08/2007
CRED 15.4.1
See Notes
CRED 15 Annex 1
Enforcement Powers
- 01/12/2004
See Notes
| SUBJECT | SECTION OF THE RELEVANT ACTS | |
| CANCELLATION OR SUSPENSION OF REGISTRATION | ||
| Power to cancel the registration of a credit union | Industrial & Provident Societies Act 1965, s.16 as applied by Credit Unions Act 1979, s.20(1) | |
| Power to suspend the registration of a credit union | Industrial & Provident Societies Act 1965, s.17 as applied by Credit Unions Act 1979, s.20(1) | |
| INSOLVENCY PROCEEDINGS | ||
| Provision of information: when a credit is in receivership | Industrial & Provident Societies Act 1965, s.43 | |
| Provision of information: when a credit union is subject to a creditors' voluntary liquidation | Industrial & Provident Societies Act 1965, s.59 | |
| INFORMATION GATHERING AND INVESTIGATION POWERS | ||
| Power to require information from individuals who are, or have been, officers of a credit union | Industrial & Provident Societies Act 1965, s.48 extended by Credit Unions Act 1979, s.17(1) | |
| Power to appoint an investigator to look into the affairs of a credit union | Industrial & Provident Societies Act 1965, s.49 extended by Credit Unions Act 1979, s.18(1) | |
| AUDITING OF ACCOUNTS | ||
| Power to require the financial accounts of a credit union for past years to be audited | Industrial & Provident Societies Act 1965, s.9(c) | |
| COMPULSORY WINDING UP | ||
| Power to petition the court for the winding up of a credit union | Credit Unions Act 1979,s.20(2) | |
| PROSECUTION OF CRIMINAL OFFENCES | ||
| Power to prosecute offences under the Industrial & Provident Societies Act 1965, Industrial & Provident Societies Act 1968 and the Credit Unions Act 1979 | Credit Unions Act 1979,s.28 | |
- 01/12/2004
CRED 17
Complaint handling procedures for credit unions
CRED 17.1
Application and Purpose
- 01/12/2004
CRED 17.1.1
See Notes
This
chapter applies to all credit
unions.
- 01/12/2004
CRED 17.1.2
See Notes
This chapter replaces DISP 1 (Treating complainants fairly). which does not apply to credit unions (DISP 1.1.5 R (2)).
CRED 17.1.3
See Notes
This chapter is also relevant to eligible complainants who
might wish to refer a complaint to the Financial
Ombudsman Service.
- 01/12/2004
CRED 17.1.4
See Notes
DISP 2 - DISP 4 (which cover jurisdiction and procedures of the Financial Ombudsman Service) and FEES 5 (which covers funding of the Financial Ombudsman Service) apply to credit unions.
- 01/12/2004
CRED 17.1.5
See Notes
The purpose of this chapter is to set out the rules relating to the internal handling of complaints by a credit union, including:
- (1) the procedures which a credit union must put in place;
- (2) the time limits within which a credit union must deal with a complaint;
- (2A) the referral of complaints;
- (3) the records of a complaint which a credit union must make and retain; and
- (4) the requirements for a credit union to report information about complaints to the FSA.
CRED 17.1.6
See Notes
This is to ensure that complaints are handled fairly, effectively and promptly, and are resolved at the earliest possible opportunity, thereby minimising the number of unresolved complaints which need to be referred to the Financial Ombudsman Service. This purpose is compatible with the FSA's consumer protection statutory objective.
- 01/12/2004
CRED 17.2
Internal complaint handling procedures: general requirements
- 01/12/2004
CRED 17.2.1
See Notes
A credit union must establish, maintain and implement appropriate and effective internal complaint handling procedures (which must be written down) for:
- (1) handling any expression of dissatisfaction whether oral or written, and whether justified or not, from or on behalf of an eligible complainant about that credit union's provision of, or failure to provide, a financial services activity: and
- (2) referring to another firm, A, expressions of dissatisfaction about A's services, if the credit union markets (or has marketed) A's financial services or if the credit union's financial services are marketed by A.
CRED 17.2.2
See Notes
An eligible complainant is a person who would be eligible to refer a complaint to the Financial Ombudsman Service. The term is defined for all firms in DISP 2.4, but guidance for credit unions is provided at CRED 17.3 below.
CRED 17.2.3
See Notes
Credit
unions are not obliged to restrict their internal complaint
handling procedures to expressions of dissatisfaction from eligible complainants. They may, if they
wish, also establish procedures for handling complaints from other persons.
- 01/12/2004
CRED 17.2.4
See Notes
The internal complaint handling procedures should provide for:
- (1) receiving complaints;
- (2) responding to complaints;
- (2A) referring complaints to other firms;
- (3) the appropriate investigation of complaints; and
- (4) notifying complainants of their right to go to the Financial Ombudsman Service, where relevant.
CRED 17.2.5
See Notes
When deciding what constitutes an appropriate complaint handling procedure, a credit union should have regard to:
- (1) the type of business it undertakes;
- (2) its size and organisational structure;
- (3) the nature and complexity of the complaints it is likely to receive; and
- (4) the number of complaints it is likely to receive and have to investigate.
- 01/12/2004
CRED 17.2.6
See Notes
- (1) A credit union is not prevented from using a third party administrator (for example, an outside organisation) for the purposes of handling complaints.
- (2) It is acceptable for two or more credit unions to set up arrangements, such as a one-stop shop for complaints handling under a service level agreement, provided that this still secures for complainants an equivalent standard of service and, if appropriate, redress. Any such arrangements should be made clear to an eligible complainant.
CRED 17.2.7
See Notes
In establishing their internal complaint
handling procedures, credit
unions may wish to take account of British Standard 8600:1999
- Complaints Management Systems - Guide to Design and Implementation. This
is available on request from the FSA.
- 01/12/2004
CRED 17.2.8
See Notes
A credit union must:
- (1) refer in writing to the availability of its internal complaint handling procedures when, or as soon as possible after, a person is admitted as a member or juvenile depositor;
- (2) publish details of its internal complaint handling procedures, supply a copy on request and supply a copy automatically to the complainant when it receives a complaint (unless the complaint is resolved by close of business on the next business day); and
- (3) display at its registered office a notice that it is covered by the Financial Ombudsman Service.
- 01/12/2004
CRED 17.2.9
See Notes
In order to comply with CRED
17.2.1 R, a credit
union may include reference to its complaint handling procedures
in documentation supplied to members, for example its membership pack or the
first piece of correspondence sent to a member or juvenile depositor after
he joins the credit union.
- 01/12/2004
CRED 17.2.10
See Notes
A credit
union may also, if it wishes to do so, disclose the fact that
it is covered by the Financial
Ombudsman Service by including the Financial Ombudsman Service logo in any marketing
literature or correspondence directed at members or juvenile depositors, provided
that it does so in a way which is not misleading.
- 01/12/2004
CRED 17.2.11
See Notes
A credit union's internal complaint handling procedures must make provision for:
- (1) complaints to be investigated by a suitable person (officer, director or member of staff of the credit union) who, where appropriate, was not directly involved in the matter which is the subject of the complaint;
- (2) the person charged with responding to complaints to have the authority to settle complaints (including the offering of redress where appropriate) or to have ready access to someone who has the necessary authority; and
- (3) responses to complaints to address adequately the subject matter of the complaint and, where a complaint is upheld, to offer appropriate redress.
- 01/12/2004
CRED 17.2.12
See Notes
Where a credit union decides that redress is appropriate,
it must provide a complainant with fair compensation for any acts or omissions
for which it was responsible and comply with any offer of redress which the
complainant accepts.
- 01/12/2004
CRED 17.2.13
See Notes
A credit
union must take all reasonable steps to ensure that all relevant persons (whether officers, directors or volunteers)
are aware of the credit
union's internal complaint handling procedures and must endeavour
to ensure that they act in accordance with them.
- 01/12/2004
CRED 17.2.14
See Notes
A credit
union must put in place appropriate management controls and
take reasonable steps to ensure that it handles complaints fairly, consistently
and promptly, and that it identifies and remedies any recurring or systemic
problems, as well as any specific problem identified by a complaint.
- 01/12/2004
CRED 17.2.15
See Notes
The internal complaint handling procedures
should enable complainants to make a complaint by any reasonable means (for
example by letter, telephone, or in person).
- 01/12/2004
CRED 17.2.16
See Notes
A credit
union's correspondence and literature relating to complaints
should be in clear and plain language.
- 01/12/2004
CRED 17.2.17
See Notes
The FSA will take account of the size and nature of the credit union in applying the requirements.
- 01/12/2004
CRED 17.2.18
See Notes
In deciding whether or not to accept a complaint and what would be appropriate redress, credit unions may wish to consider any relevant guidance published by the FSA or the Financial Ombudsman Service.
- 01/12/2004
CRED 17.2.19
See Notes
Appropriate redress will not always involve
financial redress. It may, for example, simply involve an apology. Where financial
redress is deemed appropriate, it may include a reasonable rate of interest.
- 01/12/2004
CRED 17.3
Eligible complainants
- 01/12/2004
CRED 17.3.1
See Notes
The definition of eligible complainant in
DISP 2.4
applies for the purposes
of this chapter.
CRED 17.3.2
See Notes
The FSA regards the general definition of eligible complainant as meaning, in the credit union context:
- (1) those having a direct relationship with the credit union:
- (a) members, potential members and former members of the credit union;
- (b) juvenile depositors, potential juvenile depositors and former juvenile depositors of the credit union.
- (2) those having an indirect relationship with the credit union:
- (a) businesses with a turnover of less than £1million (where, for example, the business has guaranteed a member's loan); if in doubt a credit union should assume that the business is eligible;
- (b) beneficiaries of those having a direct relationship with the credit union (where, for example, a person has been nominated to receive property on a person's death).
- (3) the representatives of those having a direct or indirect relationship with the credit union (where, for example, a person is acting on behalf of a deceased member).
- 01/12/2004
CRED 17.4
Internal complaint handling procedures: additional requirements
- 01/12/2004
CRED 17.4.1
See Notes
The additional requirements in CRED 17.5 - CRED 17.7 (on time-limits, record-keeping; reporting and cooperation with Ombudsman) do not apply:
- (1) where the credit union has taken reasonable steps to determine, and has determined, that the complaint:
- (a) is not made by, or on behalf of, an eligible complainant; or
- (b) does not relate to an activity of that credit union (or of any other firm with whom that credit union has some connection in marketing financial services) which comes under the jurisdiction of the Financial Ombudsman Service; or
- (c) does not involve an allegation that the complainant has suffered, or may suffer, financial loss, material distress or material inconvenience; or
- (2) where the complaint has been resolved by close of business on the business day following receipt.
CRED 17.4.2
See Notes
DISP 2.6 sets out the activities which come under the jurisdiction of the Financial Ombudsman Service, as follows:
- (1) regulated activities;
- (2) lending money secured by a charge on land;
- (3) lending money (other than restricted credit);
- (4) paying money by a plastic card (other than a store card);
- (5) the provision of ancillary banking services;
- (6) consumer credit activities;
or activities ancillary to them (see DISP 2.6.2 G).
CRED 17.4.3
See Notes
Financial loss includes indirect or future
loss, in addition to actual loss. For example, a complaint may involve an
allegation that the complainant may suffer financial loss which has not yet
occurred.
- 01/12/2004
Referring complaints
CRED 17.4.4
See Notes
- (1) A credit union which has reasonable grounds to be satisfied that another firm may be solely responsible for the fault alleged in a complaint may refer the complaint to that other firm but if it does so it must:
- (a) refer the complaint promptly and in any event within five business days of the date on which it became satisfied that such other firm may be responsible for the subject matter of the complaint;
- (b) make the referral using a durable medium; and
- (c) inform the complainant of the referral by way of a final response and include the other firm's contact details.
- (2) A credit union which has reasonable grounds to be satisfied that another firm may be jointly responsible for the fault alleged in a complaint, may refer the complaint to that other firm but if it does so it must:
- (a) refer the complaint promptly and in any event within five business days of the date on which it became satisfied that such other firm may be jointly responsible for the subject matter of the complaint;
- (b) make the referral using a durable medium;
- (c) at the same time inform the complainant of the referral and include the other firm's contact details; and
- (d) comply with the obligations in CRED as to the investigation of that part of the complaint that is the credit union's responsibility and, as soon as possible, inform the complainant of the outcome by a final response.
- 14/01/2005
Dealing with a referred complaint
CRED 17.4.5
See Notes
When
a firm receives
a complaint referred to it under CRED
17.4.4 R, the complaint is treated for the purposes of CRED as if made directly
to that firm,
and as if received by it when the referral was received.
- 14/01/2005
CRED 17.4.6
See Notes
On
receiving a complaint referred by a firm,
the standard time limits will apply from the date on which the credit union receives
the referral. In particular, CRED
17.5.1 R requires the credit
union to send a written acknowledgement to the complainant within
five business days.
A credit union should
copy this acknowledgement to the firm which
made the referral.
- 14/01/2005
CRED 17.5
Time limits for dealing with a complaint
- 01/12/2004
CRED 17.5.1
See Notes
A credit
union must send a written acknowledgement of a complaint to the complainant within five
business days
of its receipt, giving the name or job
title of the person handling
the complaint within the credit
union (together with details of the credit union's internal complaint handling
procedures).
CRED 17.5.2
See Notes
A credit
union that is able to provide a final response within five business days
of receipt of a complaint may combine its acknowledgement of the complaint
with the final response.
- 01/12/2004
CRED 17.5.3
See Notes
A credit
union should aim to resolve complaints at the earliest possible
stage.
- 01/12/2004
CRED 17.5.4
See Notes
By the end of eight weeks after its receipt of a complaint, the credit union must send the complainant either:
- (1) a final response; or
- (2) a response which;
- (a) explains that the credit union is still not in a position to make a final response, gives reasons for the further delay and indicates when it expects to be able to provide a final response; and
- (b) informs the complainant that he may refer the complaint to the Financial Ombudsman Service if he is dissatisfied with the delay and encloses a copy of the Financial Ombudsman Service's explanatory leaflet.
- 01/12/2004
CRED 17.5.5
See Notes
When a credit union sends a complainant its final response, the final response must:
- (1) inform the complainant that he may refer the complaint to the Financial Ombudsman Service if he is dissatisfied with the final response and that he must do so within six months; and
- (2) enclose a copy of the Financial Ombudsman Service's explanatory leaflet (unless it has already done so).
- 01/12/2004
CRED 17.5.6
See Notes
Copies of the Financial Ombudsman Service's explanatory
leaflet may be reproduced under licence or can be obtained from the Financial Ombudsman Service.
- 01/12/2004
CRED 17.5.7
See Notes
Under CRED 17.5.4 R and CRED 17.5.5 R:
- (1) even if the credit union has failed to resolve the complaint within eight weeks, the complainant may decide to give the credit union more time before exercising any right he may have to refer a complaint to the Financial Ombudsman Service; and
- (2) the six month time limit within which a complainant must refer a complaint to the Financial Ombudsman Service begins at the date when the final response is sent by the credit union.
- 01/12/2004
CRED 17.6
Record Keeping and Reporting
- 01/12/2004
CRED 17.6.1
See Notes
A credit
union must make and retain records of complaints (except those
referred to in CRED
17.4.1 R)
for a minimum period of three years from the date of its receipt of a complaint.
- 01/12/2004
CRED 17.6.2
See Notes
The records required are for the purposes of monitoring by the FSA and also to ensure that the credit union is able to cooperate, as necessary, with the Financial Ombudsman Service. These should include:
- (1) the name of the complainant;
- (2) the substance of the complaint; and
- (3) any correspondence between the credit union and the complainant, including details of any redress offered by the credit union; and
- (4) documentation relating to the referral of a complaint under CRED 17.4.4 R.
CRED 17.6.3
See Notes
A credit union must provide the FSA, once a year, with a report in the format set out in CRED 17 Annex 1 R (Credit Union complaints return) which contains (for the relevant reporting period) information about:
- (1) the total number of complaints received by the credit union (except those referred to in CRED 17.4.1 R) broken down according to the categories and in respect of each of the generic product types described in CRED 17 Annex 1 R (Credit union complaints return) which are relevant to the credit union;
- (2) the number of complaints closed by the credit union:
- (a) within eight weeks of receipt; and
- (b) more than eight weeks after receipt;
- (3) the total number of complaints:
- (a) upheld by the credit union in the reporting period;
- (b) that the credit union knows have been referred to, and accepted by, the FOS during the reporting period; and
- (c) outstanding at the end of the reporting period;
- (4) the total amount of redress paid in respect of complaints during the reporting period; and
- (5) the single contact within the for complainants.
CRED 17.6.4
See Notes
For the purpose of CRED 17.6.3 R, and upon completing the return, the credit union should note that:
- (1) Where a complaint could fall into more than one category, the complaint should be recorded against the category that the credit union considers to form the main part of the complaint.
- (2) Where a complaint has been upheld under CRED 17.6.3 R (3)(a), a credit union should report any complaints to which it has given a final response which accepts the complaint and, where appropriate, offers redress, even if the redress offered is disputed by the complainant. Where a complaint is upheld in part, the credit union should treat the whole complaint as upheld for reporting purposes. Where a credit union rejects a complaint, yet chooses to make an ex-gratia payment to the complainant, the complaint should be recorded as rejected.
- (3) Where a credit union reports on the amount of redress paid under CRED 17.6.3 R (4), redress should be interpreted to include any amount paid, or cost borne, by the credit union, where a cash value can be readily identified, and should include:
- (a) amounts paid for distress and inconvenience;
- (b) a free transfer out to another provider which transfer would normally be paid for;
- (c) ex-gratia payments and goodwill gestures;
- (d) interest on delayed settlements
- (e) waiver of an excess on an insurance policy; and
- (f) payments to put the consumer back into the position the consumer should have been in had the act or omission not occurred.
- (4) Where a credit union reports on the amount of redress paid under CRED 17.6.3 R (4), such redress would not, however, include repayments or refunds of premiums which had been taken in error (for example where a credit union had been taking, by direct debit, twice the actual premium amount due under a policy). The refund of the overcharge would not count as redress.
CRED 17.6.5
See Notes
For the purposes of CRED 17.6.3 R:
- 01/12/2004
CRED 17.6.6
See Notes
- (1) Financial penalties may be imposed for the late submission of the complaints report required by CRED 17.6.3 R.
- (2) Details of the FSA's policy and procedures on financial penalties are given in CRED 15.5 (Financial penalties for late submission of reports) and CRED 15 Annex 3 G.
- 01/12/2004
CRED 17.6.7
See Notes
For the purposes of making reports under CRED 17.6.3 R, a closed complaint is a complaint:
- (1) where the credit union has sent a final response;
- (2) where the complainant has positively indicated acceptance of the credit union's earlier response; or
- (3) where the complainant has failed to revert to the credit union within eight weeks of the credit union's most recent letter.
- 01/12/2004
CRED 17.6.8
See Notes
A report under this section must be given or addressed, and delivered, in the way set out in SUP 16.3.6 R - SUP 16.3.16 G (General provisions on reporting) (see CRED 14.10.4 G - CRED 14.10.4F G), except that:
- (1) instead of the credit union's usual supervisory contact, the report should be given to or addressed for the attention of the Notification, Reporting and Data Maintenance department of the FSA.
- (2) [deleted]
CRED 17.6.8B
See Notes
[deleted]
- (1) submit its report under this section through one of the alternative methods of submission of reports in SUP 16.3.9 R (see CRED 14.10.4 G); and
- (2) notify the FSA, in writing and without delay, of that systems failure.
CRED 17.6.9
See Notes
For the purpose of inclusion in the public
record maintained by the FSA,
a credit union must
provide the FSA,
at the time of its authorisation,
with details of a single contact within the credit union for complainants, and in its
quarterly return must notify the FSA of
any subsequent change.
- 01/12/2004
CRED 17.6.10
See Notes
The contact point in CRED
17.6.3 R and CRED
17.6.9 R can be by
name or job title and may include, for example, a telephone number.
- 01/12/2004
CRED 17.7
Cooperation by credit unions with the Ombudsman
- 01/12/2004
CRED 17.7.1
See Notes
A credit
union must cooperate fully with the Ombudsman in the handling of complaints against
it.
- 01/12/2004
CRED 17.7.2
See Notes
- 01/12/2004
CRED 17 Annex 1
Credit union complaints return
- 01/12/2004
See Notes
This annex consists only of one or more forms. Forms are to be found through the following address:
Credit union complaints return - FSA/docs/cred/cred17_ann1R_01082009.pdf Opens in a new window
Credit union complaints return - FSA/docs/cred/cred17_ann1R_01082009.pdf Opens in a new window
CRED App 1
Contents of the Handbook
CRED App 1.1
This is the table referred to in CRED 2.2.2G.
- 01/12/2004
CRED App 1.1.1
| Sourcebook or manual | Reference code | |
| High Level Standards | Principles for Businesses | PRIN |
| Senior Management Arrangements, Systems and Controls | SYSC | |
| Statements of Principle and Code of Practice for Approved Persons | APER | |
| The Fit and Proper test for Approved persons | FIT | |
| General provisions | GEN | |
| Business Standards | 5 Interim Prudential sourcebooks | IPRU |
| General Prudential sourcebook | GENPRU | |
| Prudential sourcebook for Banks, Building Societies and Investment Firms | BIPRU | |
| Prudential sourcebook for Insurers | INSPRU | |
| Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries | MIPRU | |
| Prudential sourcebook for UCITS Firms | UPRU | |
| Conduct of Business | COBS | |
| Client assets | CASS | |
| Market conduct, including: Code of Market Conduct Price stabilising rules Inter-professional conduct, Multilateral Trading Facilities |
MAR | |
| Training and Competence | TC | |
| Regulatory Processes | Authorisation | AUTH |
| Supervision | SUP | |
| Decision Procedure and Penalties | DEPP | |
| Redress | Dispute resolution: Complaints | DISP |
| Compensation | COMP | |
| Complaints against the FSA | COAF | |
| Specialist sourcebooks | Collective investment schemes | CIS |
| New Collective Investment Scheme sourcebook | COLL | |
| Credit unions | CRED | |
| [deleted] | [deleted] | |
| Professional firms | PROF | |
| Deleted | Deleted | |
| Mortgages | MORT | |
| Recognised investment exchanges and Recognised clearing houses | REC | |
| Listing, Prospectus and Disclosure | Listing Rules | LR |
| Prospectus Rules | PR | |
| Disclosure Rules and Transparency Rules | DTR | |
| Schedules: Transitional provisions Summary schedules: 1. Record keeping requirements 2. Notification requirements 3. Fees and other required payments 4. Powers exercised in making the Handbook 5. Rights of action for damages 6. Rules that can be waived 7. Releases |
||
| Glossary of definitions | ||
| Index | ||
CRED App 2
The Credit Unions sourcebook
CRED App 2.1
Detailed contents of CRED
- 01/12/2004
CRED App 2.1.1
| 1 | Introduction | ||
| 1.1 | The Credit Unions sourcebook | ||
| 2 | Reader's Guide | ||
| 2.1 | What is this guide? | ||
| 2.2 | Structure | ||
| 2.3 | Contents of CRED | ||
| 2.4 | Status of provisions | ||
| 2.4.2 | Rules: R | ||
| 2.4.4 | Evidential provisions: E | ||
| 2.4.6 | Guidance: G | ||
| 2.4.11 | Direction: D | ||
| 2.5 | Numbering: Pages | ||
| 2.6 | Numbering: Contents | ||
| 2.7 | Defined terms | ||
| 2.8 | Schedules | ||
| 2.8.2 | Transitional provision | ||
| 2.8.3 | Schedule 1: Rules that can be waived | ||
| 2.8.4 | Schedule 2: Notification requirements | ||
| 2.8.5 | Schedule 3: Contents of the FSA Handbook | ||
| 2.8.6 | Schedule 4: Powers exercised in making the Handbook | ||
| 2.8.7 | Schedule 5: Rights of action for damages | ||
| 2.8.8 | Schedule 6: Rules that can be waived | ||
| 2.8.9 | Schedule 7: Schedule of releases | ||
| 3 | The FSA's Principles for Businesses | ||
| 3.1 | Application and Purpose | ||
| 3.2 | The Principles | ||
| 3.3 | Consequences of breaching the Principles | ||
| 4 | Senior management arrangements, systems and controls | ||
| 4.1 | Application and purpose | ||
| 4.2 | Apportionment of responsibilities | ||
| 4.3 | Systems and controls | ||
| 4.3.1 | General | ||
| 4.3.5 | Rules and evidential provisions | ||
| 4.3.15 | Committee of management | ||
| 4.3.19 | Organisation | ||
| 4.3.28 | Documentation of systems of control | ||
| 4.3.32 | Accounting records and systems | ||
| 4.3.37 | Compliance | ||
| 4.3.41 | Management information | ||
| 4.3.46 | Information for the FSA | ||
| 4.3.47 | Personnel | ||
| 4.3.50 | Internal Audit | ||
| 4.3.61 | Business planning | ||
| 4.3.69 | Documentation of policies and procedures | ||
| 4.3.72 | Business continuity | ||
| 5 | Threshold conditions | ||
| 5.1 | Application and purpose | ||
| 5.2 | The Conditions | ||
| 6 | The Approved persons Regime | ||
| 6.1 | Application and purpose | ||
| 6.2 | The Statements of Principle of Code of Practice for Approved Persons (APER) | ||
| 6.2.2 | Introduction | ||
| 6.2.4 | The Statements of Principle | ||
| 6.2.6 | Code of Practice for Approved persons | ||
| 6.2.7 | Factors relevant to Statements of Principle | ||
| 6.2.9 | Enforcement procedures | ||
| 6.3 | Approved Persons | ||
| 6.3.2 | Introduction | ||
| 6.3.3 | Purpose of the regime | ||
| 6.3.4 | Controlled functions | ||
| 6.3.5 | Specification of functions | ||
| 6.4 | Assessing fitness and propriety | ||
| 6.4.1 | Purpose | ||
| 6.4.2 | Background | ||
| 6.4.3 | Assessing fitness and propriety | ||
| 7 | Investment and borrowing | ||
| 7.1 | Application, purpose and interpretation | ||
| 7.2 | Investment | ||
| 7.2.1 | Types of investment | ||
| 7.2.2 | Maturity of investments | ||
| 7.2.4 | Cash in custody of officers | ||
| 7.2.5 | Investment conditions no longer satisfied | ||
| 7.2.6 | Transactions between credit unions | ||
| 7.3 | Borrowing and Financial risk management | ||
| 7.3.1 | Borrowing | ||
| 7.3.7 | Financial risk management policy statement | ||
| 7A | Shareholding | ||
| 7A.1 | Application and purpose | ||
| 7A.2 | Members' shares | ||
| 7A.2.1 | Maximum shareholdings | ||
| 7A.2.5 | Joint accounts | ||
| 7A.2.7 | Dividends on shares | ||
| 7A.3 | Deposits | ||
| 7A.4 | Insurance against fraud or other dishonesty | ||
| Ann 1 | Insurance against fraud or other dishonesty | ||
| 8 | Capital requirements | ||
| 8.1 | Application and purpose | ||
| 8.2 | Components of capital | ||
| 8.3 | Version 1 credit unions | ||
| 8.3.1 | Requirement to maintain positive net worth | ||
| 8.3.5 | Building reserves | ||
| 8.3.9 | Minimum initial capital | ||
| 8.3.12 | Capital requirement for version 1 credit unions wishing to lend amounts of more than £5,000 in excess of the borrowing member's shareholding | ||
| 8.3.14 | Capital requirements for large version 1 credit unions | ||
| 8.4 | Version 2 credit unions | ||
| 8.4.3 | Minimum initial capital | ||
| 9 | Liquidity | ||
| 9.1 | Application, purpose and interpretation | ||
| 9.2 | General requirements | ||
| 9.3 | Minimum liquidity requirements | ||
| 10 | Lending to members | ||
| 10.1 | Application and purpose | ||
| 10.2 | General requirements | ||
| 10.3 | Lending limits | ||
| 10.4 | Large exposures | ||
| 10.5 | Provisioning | ||
| 11 | Conduct of business | ||
| 11.1 | Introduction | ||
| 11.2 | Financial promotion | ||
| 11.3 | Statutory status disclosure | ||
| 11.4 | Entering into a distance contract for accepting deposits | ||
| [deleted] | |||
| 13 | Registration and Authorisation | ||
| 13.1 | Application and purpose | ||
| 13.2 | Introduction | ||
| 13.2A | Use of name "credit union" | ||
| 13.3 | What does registration mean? | ||
| 13.4 | Process for registration | ||
| 13.5 | What does authorisation involve? | ||
| 13.6 | Process for Part IV permission | ||
| 13.7 | Applying for approved persons status | ||
| 13.8 | The FSA's decision making procedures | ||
| Ann 1 | Requirements of Registration [table] | ||
| Ann 1A | Common bond | ||
| Ann 1B | Section 1 of the Credit Unions Act 1979 (as amended) | ||
| Ann 1C | Qualifications approved by the FSA (and the Registry of Friendly Societies) | ||
| Ann 2 | Eligibility for membership of a credit union | ||
| 14 | Supervision | ||
| 14.1 | The FSA's approach to supervision | ||
| 14.1.1 | Application and purpose | ||
| 14.1.6 | The FSA's risk based approach to supervision | ||
| 14.1.7 | Tools of supervision | ||
| 14.2 | Information gathering by the FSA on its own initiative | ||
| 14.2.1 | Application and purpose | ||
| 14.2.7 | Information gathering by the FSA on its own initiative: background | ||
| 14.2.9 | Information gathering by the FSA on its own initiative: cooperation by credit unions | ||
| 14.2.13 | "Mystery Shopping" | ||
| 14.3 | Auditors | ||
| 14.3.1 | Application and purpose | ||
| 14.3.3 | Appointment of auditors | ||
| 14.3.5 | Auditors' qualifications | ||
| 14.3.12 | Auditors' independence | ||
| 14.3.16 | Credit unions' cooperation with their auditors | ||
| 14.3.20 | Notification of matters raised by auditor | ||
| 14.3.22 | Rights and duties of all auditors | ||
| 14.4 | Skilled persons | ||
| 14.4.1 | Application and purpose | ||
| 14.4.3 | The FSA's power | ||
| 14.4.4 | Policy on the use of skilled persons | ||
| 14.4.5 | Appointment and reporting process | ||
| 14.4.6 | Duties of a credit union | ||
| 14.4.8 | Confidential information privilege | ||
| 14.5 | Application to vary or cancel Part IV permission | ||
| 14.5.1 | Application and purpose | ||
| 14.5.5 | Introduction | ||
| 14.5.6 | Applications for variation of permission | ||
| 14.5.15 | Applications for cancellation of permission | ||
| 14.5.29 | Ending authorisation | ||
| 14.5.30 | Additional guidance | ||
| 14.6 | Individual requirements | ||
| 14.6.1 | Application and purpose | ||
| 14.6.4 | The FSA's powers to set individual requirements on its own initiative | ||
| 14.6.7 | Criteria for varying a credit union's permission | ||
| 14.7 | Waiver and modification of rules | ||
| 14.7.1 | Application and purpose | ||
| 14.7.3 | Introduction | ||
| 14.7.5 | Applying for a waiver | ||
| 14.7.11 | Notification of altered circumstances relating to waivers | ||
| 14.7.12 | Publication of waivers | ||
| 14.7.15 | Varying waivers | ||
| 14.7.16 | Revoking waivers | ||
| 14.7.19 | Decision making | ||
| 14.8 | Individual guidance | ||
| 14.8.1 | Application and purpose | ||
| 14.8.4 | Making a request for individual guidance | ||
| 14.8.7 | Giving individual guidance to a credit union on the FSA's own initiative | ||
| 14.8.9 | Reliance on individual guidance | ||
| 14.9 | Notifications to the FSA | ||
| 14.9.1 | Application and purpose | ||
| 14.9.3 | General notification requirements | ||
| 14.9.13 | Core information requirements | ||
| 14.9.15 | Inaccurate, false or misleading information | ||
| 14.9.18 | Form and method of notification | ||
| 14.10 | Reporting requirements | ||
| 14.10.1 | Application and purpose | ||
| 14.10.4 | General provisions on reporting | ||
| 14.10.5 | Quarterly Return | ||
| 14.10.7 | Annual Return | ||
| 14.10.9 | Accounts and audit | ||
| 14.10.12 | Financial penalties for late submission of reports | ||
| 14.10.13 | Controllers and close links | ||
| Ann 1 | Accounts and audit - Friendly and Industrial and Provident Societies Act 1968 | ||
| 15 | Decision procedure, penalties and enforcement | ||
| 15.1 | Application and purpose | ||
| 15.2 | Industrial and Provident Societies legislation | ||
| 15.3 | Decision Procedure and Penalties manual | ||
| 15.4 | Enforcement Guide | ||
| 15.5 | [deleted] | ||
| Ann 1 | Enforcement Powers [table - powers available under Industrial and Provident Societies legislation and the Credit Unions Act 1979] | ||
| Ann 2 | [deleted] | ||
| Ann 3 | [deleted] | ||
| 16 | [deleted] | ||
| 17 | Complaint handling procedures for credit unions | ||
| 17.1 | Application and purpose | ||
| 17.2 | Internal complaint handling procedures: general requirements | ||
| 17.3 | Eligible complainants | ||
| 17.4 | Internal complaint handling procedures: additional requirements | ||
| 17.5 | Time limits for dealing with a complaint | ||
| 17.6 | Record keeping and reporting | ||
| 17.7 | Co-operation by credit unions with the Ombudsman | ||
| Ann 1 | Complaints report | ||
Transitional Provisions and Schedules
CRED TP 1
Transitional provisions
CRED TP 1.1
Transitional provisions
| (1) | (2) Material to which the transitional provision applies | (3) | (4) Transitional provision | (5) Transitional provision: dates in force | (6) Handbook provision: coming into force |
| 1 | Every rule in the Handbook relating to a credit union | R | Where a transitional provision in the Handbook refers to "commencement", in relation to a credit union it means "credit unions day". | From credit unions day | varies depending on rule concerned |
| 2 | As for 1 | G | Where a rule applies to a credit union, its related transitional provision will also apply. The effect of paragraph 1 is to ensure that the transitional provision applies from credit unions day (and not from the earlier date of commencement). | As for 1 | As for 1 |
| 3 | CRED 15.5 CRED 15 Annex 3 G |
G | Expired | ||
| 4 | CRED 17.6.5 R | R | In the year ending 31 March 2003, the relevant period is from 1 October 2002 to 31 March 2003. | from 1 April 2003 | credit unions day |
| 5 | CRED 17.4.4 R - CRED 17.4.6 | R | A credit union must apply CRED as it applied before amendment by the Depolarisation Instrument with respect to complaints received by a credit union before 14 January 2005. | From 14 January 2005 | From 14 January 2005 |
- 01/04/2005
- Past version of CRED TP 1 before 01/04/2005
CRED Sch 1
Record keeping requirements
- 01/12/2004
CRED Sch 1.1
See Notes
| The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements. | |
| It is not a complete statement of those requirements and should not be relied on as if it were. |
- 01/12/2004
CRED Sch 1.2
See Notes
| Handbook reference | Subject of reference | Contents of record | When record must be made | Retention period |
| CRED 4.2.11 G | Apportionment of significant responsibilities | Record of arrangements and how responsibilities are shared. | Immediately | 6 years |
| CRED 17.6.1 R | Complaints Handling | Specifies retention period of complaints. | From date of receipt | 3 years |
CRED Sch 2
Notification requirements
- 01/12/2004
See Notes
| The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements. |
| The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements. |
| It is not a complete statement of those requirements and should not be relied on as if it were. |
| Handbook reference | Matter to be notified | Contents of notification | Trigger event | Time allowed |
| CRED 4.3.5 R | Business plan | Copy of business plan. | Upon request | As soon as reasonably practical |
| CRED 4.3.7 R | Policies and procedures manual | Copy of policies and procedures manual. Wide range of detail as specified as guidance in Chapter 4. |
Upon request | As soon as reasonably practical |
| CRED 4.3.9 R | Documented system of control | Systems of control. | Upon request | As soon as reasonably practical |
| CRED 6.3.12 G | Approved Persons | Application to perform a controlled function. | When applicable | Asap |
| Notice to withdraw application. | Asap | |||
| Notice of ceasing to perform. | Within 7 days of cessation | |||
| Notification of changes in application details. | Asap | |||
| CRED 7.3.10 R | Financial risk Management Policy | Statement of financial risk management policy. | On conversion to version 2 | Upon request to convert to version 2 |
| CRED 8.2.1B G | General notification | Any proposed repayment of subordinated debt | As soon as credit union aware | At an early stage |
| CRED 9.2.3 R | Liquidity | Liquidity Management Policy Statement for version 2 credit unions. | After adoption and/or review or amendment | As soon as reasonably practical |
| CRED 10.2.1 R - CRED 10.2.2 R | Lending Policy | Current lending policy statement. | After adoption and/or review or amendment | As soon as reasonably practical |
| CRED 10.4.6 G | Large Exposures | Limits on large exposures to avoid concentration of risk. | Upon request | As soon as reasonably practical |
| CRED 14.3.3 G | Appointment of Auditors | Notification of vacancy of auditor. Notification of appointment of auditor. |
As applicable | Immediately |
| CRED 14.3.21 G | Matters raised by auditors | Possible notification to the FSA of any written communication from its auditor commenting on internal controls. | When relevant | Immediately |
| CRED 14.3.30 G | Duties of auditors on ceasing to audit a credit union | Notification of his removal by the credit union. Resignation before his term in office expires. Is not re-appointed by a credit union |
When applicable | Immediately |
| CRED 14.3.31 G | Duties of the auditors on ceasing to audit a credit union | Notification of any matter connected with cessation of duties that should be drawn to the FSA's attention or that there is no such matter. | When applicable | Immediately |
| CRED 14.7.11 G | Notification of altered circumstances relating to a waivers | Specifies the reference point the credit union must refer to if a waiver is no longer relevant or appropriate. | When applicable | Immediately |
| CRED 14.9.3 G | General notification | Credit union at risk of: Failure to satisfy threshold conditions; Reputation at risk; Services to members at risk; Any matter that may result in serious financial consequences. |
When applicable | Immediately |
| CRED 14.9.5 G | General notification | Any proposed re-organisation that may have a significant impact. Failure in systems or controls. Material change to capital adequacy or solvency. |
As soon as the credit union is aware | At an early stage |
| CRED 14.9.7 G | General notification | Breaches of rules or principles, statutory requirements or the prosecution or conviction of any of the committee of management. | As soon as the credit union is aware | Immediately |
| CRED 14.9.8 G | General notification | Significant civil proceedings, action for damages against the credit union or prosecution or conviction of the credit union. | As soon as the credit union is aware | Immediately |
| CRED 14.9.10 G | General notification | Fraud, irregularities and misconduct. | As soon as the credit union is aware | Immediately |
| CRED 14.9.12 G | General notification | Legal steps involving insolvency, bankruptcy or winding up. | As soon as the credit union is aware | As soon as possible |
| CRED 14.9.13 G | Core information requirements | Change in name, address or legal structure. | As soon as the credit union is aware | Immediately |
| CRED 14.9.16 G | Inaccurate, false or misleading information | Notification that information already provided is incorrect. | As soon as the credit union is aware | Immediately |
| CRED 14.10.4 G | Reporting :change of accounting reference date | The fact of a change in accounting reference date | A change in accounting reference date | If extending its accounting reference period, before the previous accounting reference date. If shortening its accounting period, before the new accounting reference date. |
| CRED 14.10.5 G | Quarterly Return | Key financial data | Quarter end | 1 month after quarter end |
| CRED 14.10.7 G | Annual Return | Extended financial data | Financial year end | 7 months after financial year end |
| CRED 14.10.10 R | Audited accounts | Revenue account and Balance sheet | Financial year end | Until submission of Annual Return |
| CRED 17.6.6 G | Complaints report | Analysis of complaints. | 31 March each year | 1 month after period end. |
| CRED 17.6.8 R | Complaints report | Intention to stop submitting report in electronic format | When applicable | Immediately |
| CRED 17.6.9 R | Record Keeping & Reporting | Change in credit union contact for complaints handling. | As appropriate | Via the next quarterly return |
CRED Sch 3
Fees and other required payments
- 01/12/2004
CRED Sch 3.1
See Notes
| There are no requirements for fees or other payments in CRED. |
| The table below summarises the fee requirements for credit unions detailed elsewhere. |
- 01/12/2004
CRED Sch 3.2
See Notes
| Description of fee | Reference |
| FSA fees rules relating to the periodic fee | FEES 4 |
| Schedule of periodic fees payable | FEES 4 Annex 2 R Part 1 |
| FSA rules relating to authorisation fees | FEES 3 |
| Schedule of authorisation fees payable | FEES 3 Annex 1 R |
| FSCS funding rules | FEES 6 |
| FOS funding rules | FEES 5 |
CRED Sch 4
Powers exercised
- 01/12/2004
CRED Sch 4.1
See Notes
| The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in CRED: | |
| Section 138 (General rule-making power) | |
| Section 149 (Evidential provisions) | |
| Section 156 (General supplementary powers) | |
| Articles 9 (Designation of existing provisions to take effect as rules) and 10 (Modification of existing provisions) of the Financial Services and Markets Act 2000 (Consequential Amendments and Transitional Provisions) (Credit Unions) Order 2002 (SI 2002/1501) | |
CRED Sch 4.2
See Notes
| The following powers in or under the Act have been exercised by the FSA to give the guidance in CRED: | |
| Section 157(1) (Guidance) | |
| Article 14 (Guidance on continued provisions) of the Financial Services and Markets Act 2000 (Consequential Amendments and Transitional Provisions) (Credit Unions) Order 2002 (SI 2002/1501) | |
- 01/12/2004
CRED Sch 5
Rights of actions for damages
- 01/12/2004
CRED Sch 5.1
See Notes
| The table below sets out the rules in CRED contravention of which by an authorised person may be actionable under Section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention. |
| If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 (or, in certain circumstances, his fiduciary or representative). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under Section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given. |
| If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 (or, in certain circumstances, his fiduciary or representative). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under Section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given. |
| The column headed "For other person?" indicates whether the rule is actionable by a person other than a private person (or his fiduciary or representative). If so, an indication of the type of person by whom the rule is actionable is given. |
- 01/12/2004
CRED Sch 5.2
See Notes
| Right of action under section 150 | |||||
| Chapter / Appendix | Section / Annex | Paragraph | For private person? | Removed? | For other person? |
| All rules in CRED with the status letter 'E'. | No | No | No | ||
| All rules in CRED that require a credit union to have or maintain financial resources. | No | No | No | ||
| All other rules in CRED. | Yes | No | No | ||
- 01/12/2004
CRED Sch 6
Rules that can be waived
- 01/12/2004
CRED Sch 6.1
See Notes
- 01/12/2004
CRED Sch 7
[Deleted]
- 01/12/2004
CRED Sch 7.1
- 01/12/2004