CREDS 1
Introduction
CREDS 1.1
Application and purpose
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Application
CREDS 1.1.1
See Notes
- (1) The Credit Unions New Sourcebook, CREDS for short, is the specialist sourcebook for credit unions.
- (2) Northern Ireland credit unions are not covered by the Handbook or by CREDS. They are exempt from the general prohibition in respect of accepting deposits. They do not, therefore, need to be authorised persons if they do not carry on any regulated activity other than accepting deposits in the United Kingdom.
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CREDS 1.1.2
See Notes
- (1) CREDS covers only the requirements associated with a Part IV permission to accept deposits. The Conduct of Business sourcebook (COBS) sets out additional requirements for credit unions that are CTF providers in relation to cash deposit CTFs.
- (2) Other permissions are covered elsewhere in the Handbook. So, for example, a credit union seeking a permission to undertake a regulated mortgage activity would need to comply with the requirements in the Mortgages and Home Finance: Conduct of Business sourcebook (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 the Insurance: Conduct of Business sourcebook (ICOBS).
- (3) The provisions of the Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries (MIPRU) and the Interim Prudential sourcebook for Investment Businesses (IPRU(INV)) may also be relevant to a credit union whose Part IV permission includes insurance mediation activity or mortgage mediation activity or which is a CTF provider with permission to carry on designated investment business.
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CREDS 1.1.3
See Notes
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Purpose
CREDS 1.1.4
See Notes
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CREDS 1.1.5
See Notes
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CREDS 2
Senior management arrangements, systems and controls
CREDS 2.1
Application and purpose
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Application
CREDS 2.1.1
See Notes
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Purpose
CREDS 2.1.2
See Notes
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CREDS 2.1.3
See Notes
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CREDS 2.1.4
See Notes
The purposes of SYSC, which applies to all credit unions, are:
- (1) to encourage directors and senior managers to take appropriate practical responsibility for the arrangements that all firms must put in place 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 must take reasonable care to organise and control their affairs responsibly and effectively with adequate risk management systems;
- (3) to encourage all firms to vest responsibility for effective and responsible organisation in specific directors and senior managers.
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CREDS 2.2
General provisions
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Appropriate systems and controls
CREDS 2.2.1
See Notes
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CREDS 2.2.2
See Notes
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CREDS 2.2.3
See Notes
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Business plan
CREDS 2.2.4
See Notes
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CREDS 2.2.5
See Notes
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Policies and procedures manual
CREDS 2.2.6
See Notes
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CREDS 2.2.7
See Notes
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System of control
CREDS 2.2.8
See Notes
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CREDS 2.2.9
See Notes
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Internal audit function
CREDS 2.2.10
See Notes
- (1) A credit union must have an internal audit function (this may be either in-house or outsourced to a third party).
- (2) Contravention of (1) may be relied on as tending to establish contravention of SYSC 4.1.1 R (see CREDS 2.2.1 G).
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CREDS 2.2.11
See Notes
- (1) The term 'internal audit function' in CREDS 2.2.10 E refers to the generally understood concept of internal audit within a firm, in other words 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).
- (2) Guidance on internal audit is given in CREDS 2.2.40 G to CREDS 2.2.50 G.
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Segregation of duties
CREDS 2.2.12
See Notes
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CREDS 2.2.13
See Notes
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Committee of management
CREDS 2.2.14
See Notes
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CREDS 2.2.15
See Notes
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CREDS 2.2.16
See Notes
- (1) 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 4.1.1 R (see CREDS 2.2.1 G and CREDS 2.2.2 G). So, the committee of management has overall responsibility for:
- (a) establishing objectives and formulating a business plan;
- (b) monitoring the financial position of the credit union;
- (c) determining and documenting policies and procedures;
- (d) directing and coordinating the work of all employees and volunteers, and ensuring that they are capable and properly trained;
- (e) maintaining adequate reserves;
- (f) making provision for bad and doubtful debts;
- (g) recommending a dividend on shares to members subject to the credit union's financial position;
- (h) ensuring that the credit union complies with all statutory and regulatory requirements; and
- (i) ensuring that the credit union complies with the requirements of its registered rules.
- (2) 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.
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CREDS 2.2.17
See Notes
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Organisation
CREDS 2.2.18
See Notes
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CREDS 2.2.19
See Notes
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Documentation of systems of control
CREDS 2.2.20
See Notes
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CREDS 2.2.21
See Notes
- (1) The committee of management should decide what form this documentation should take, but the committee should have in mind the following points.
- (a) Documents should be comprehensive: they should cover all material aspects of the operations of the credit union.
- (b) Documents should be integrated: separate elements of the system should be cross-referred so that the system can be viewed as a whole.
- (c) Documents 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.
- (d) There should be named persons or posts for each control function and alternatives in case of absence.
- (e) Documents should state how the operation of the control is evidenced. Evidence might include signatures, records and registers. Documents should also state for how long that evidence is to be retained, taking account of SYSC 9.1.
- (f) Documents should be unambiguous. Instructions should be clear and precise, avoiding expressions such as "normally" and "if possible".
- (g) Documents should be practical and easy to consult and use when operating and reviewing systems.
- (h) Documents 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.
- (2) The committee of management should, from time to time, seek confirmation that the systems of control are being complied with.
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CREDS 2.2.22
See Notes
Documentation should not be restricted to "lower level" controls applied in processing transactions, but should also cover "high level" controls including:
- (1) identifying those powers to be exercised only by the committee of management, and the 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.
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CREDS 2.2.23
See Notes
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Accounting records and systems
CREDS 2.2.24
See Notes
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CREDS 2.2.25
See Notes
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CREDS 2.2.26
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 it 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;
- (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.
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CREDS 2.2.27
See Notes
When forming their opinion of whether the accounting and other records are adequate, the committee of management should satisfy itself that they capture and record on a timely basis, and in an orderly fashion, every transaction. The accounting and other records 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.
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CREDS 2.2.28
See Notes
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The compliance function
CREDS 2.2.29
See Notes
- (1) Depending on the nature, scale and complexity of its business, it may be appropriate for a credit union to have a separate compliance function.
- (2) The organisation and responsibilities of a compliance function should be documented.
- (3) 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.
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CREDS 2.2.30
See Notes
Guidance on compliance is located in SYSC 6.1.3 R.
[Note: As explained in SYSC 1 Annex 1.3.3G, SYSC 6.1.3 R is to be read as guidance rather than as a rule, and as if "should" appeared in that provision instead of "must".]
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CREDS 2.2.31
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.
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Management information
CREDS 2.2.32
See Notes
Guidance on management information is located in SYSC 7.1.4 R.
[Note: As explained in SYSC 1 Annex 1.3.3G, SYSC 7.1.4 R is to be read as guidance rather than as a rule, and as if "should" appeared in that provision instead of "must".]
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CREDS 2.2.33
See Notes
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CREDS 2.2.34
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 previous performance.
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CREDS 2.2.35
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.
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CREDS 2.2.36
See Notes
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Information for the FSA
CREDS 2.2.37
See Notes
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Personnel
CREDS 2.2.38
See Notes
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CREDS 2.2.39
See Notes
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Internal Audit
CREDS 2.2.40
See Notes
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CREDS 2.2.41
See Notes
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CREDS 2.2.42
See Notes
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CREDS 2.2.43
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.
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CREDS 2.2.44
See Notes
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CREDS 2.2.45
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.
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CREDS 2.2.46
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 CREDS 2.2.11G), 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.
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CREDS 2.2.47
See Notes
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CREDS 2.2.48
See Notes
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CREDS 2.2.49
See Notes
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CREDS 2.2.50
See Notes
The committee of management should be satisfied that the internal audit function (see CREDS 2.2.11 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.
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Business planning
CREDS 2.2.51
See Notes
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CREDS 2.2.52
See Notes
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CREDS 2.2.53
See Notes
Guidance on business strategy is located in SYSC 6.1.2 R and SYSC 7.1.2 R.
[Note: As explained in SYSC 1 Annex 1.3.3G, SYSC 6.1.2 R and SYSC 7.1.2 R are to be read as guidance rather than as rules, and as if "should" appeared in those provisions instead of "must".]
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CREDS 2.2.54
See Notes
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CREDS 2.2.55
See Notes
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CREDS 2.2.56
See Notes
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CREDS 2.2.57
See Notes
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CREDS 2.2.58
See Notes
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Documentation of policies and procedures
CREDS 2.2.59
See Notes
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CREDS 2.2.60
See Notes
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CREDS 2.2.61
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 CREDS 7.1 to CREDS 7.5);
- (4) arrears management (see CREDS 7.2.9 G to CREDS 7.2.10 G);
- (5) provisioning (see CREDS 7.5);
- (6) liquidity management (see CREDS 6);
- (7) financial risk management (see CREDS 3);
- (8) money laundering prevention (see SYSC 6.3);
- (9) internal audit (see CREDS 2.2.40 G to CREDS 2.2.50 G);
- (10) information technology (see CREDS 2.2.23 G);
- (11) business continuity, otherwise known as disaster recovery (see CREDS 2.2.62 G to CREDS 2.2.64 G);
- (12) marketing;
- (13) training;
- (14) connected persons and managing conflicts of interest (see CREDS 2.2.19 G);
- (15) complaints handling (see DISP 1).
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Business continuity
CREDS 2.2.62
See Notes
Guidance on business continuity is located in SYSC 4.1.6R to SYSC 4.1.8 G.
[Note: As explained in SYSC 1 Annex 1.3.3G, SYSC 4.1.6R is to be read as guidance rather than as a rule, and as if "should" appeared in that provision instead of "must".]
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CREDS 2.2.63
See Notes
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CREDS 2.2.64
See Notes
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CREDS 3
Investment and borrowing
CREDS 3.1
Application, purpose and interpretation
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Application
CREDS 3.1.1
See Notes
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Purpose
CREDS 3.1.2
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.
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Interpretation
CREDS 3.1.3
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 will 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.
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CREDS 3.2
Investment
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Types of investment
CREDS 3.2.1
See Notes
Subject to the general limitations on its powers contained in the Credit Unions Act 1979 and to the limitations contained in CREDS 3.2.2 R and CREDS 3.2.3 R, 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.
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Maturity of investments
CREDS 3.2.2
See Notes
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CREDS 3.2.3
See Notes
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Cash in custody of officers
CREDS 3.2.4
See Notes
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Investment conditions no longer satisfied
CREDS 3.2.5
See Notes
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Transactions between credit unions
CREDS 3.2.6
See Notes
- (1) A credit union may accept a loan from another credit union (section 10(1) of the Credit Unions Act 1979).
- (2) CREDS 3.2.2 R to CREDS 3.2.3 R apply to loans between credit unions, except for subordinated loans qualifying as capital under CREDS 5.2.1 R (4). (See CREDS 3.2.1 R and CREDS 5.2.8 R (2).)
- (3) CREDS 5.2.1 R to CREDS 5.2.9 G apply to subordinated loans between credit unions qualifying as capital under CREDS 5.2.1 R (4).
- (4) CREDS 7 (Lending) (which covers loans to members) does not apply to loans between credit unions (see CREDS 7.1.1 R). However, in relation to those loans, credit unions should have regard to the principles outlined in CREDS 7.4.6 G and CREDS 7.5 (Provisioning).
- (5) CREDS 6.3.4 R (2) applies to loans between credit unions in relation to liquidity.
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CREDS 3.2.7
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.
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CREDS 3.3
Borrowing and financial risk management
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Borrowing
CREDS 3.3.1
See Notes
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CREDS 3.3.2
See Notes
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CREDS 3.3.3
See Notes
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CREDS 3.3.4
See Notes
- (1) The borrowing of a version 1 credit union must not exceed an amount equal to 20% of the total non-deferred shares in the credit union at the end of more than two consecutive quarters.
- (2) Contravention of CREDS 3.3.4 E (1) may be relied on as tending to indicate contravention of CREDS 3.3.3 R.
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CREDS 3.3.5
See Notes
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CREDS 3.3.6
See Notes
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Financial risk management policy statement
CREDS 3.3.7
See Notes
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CREDS 3.3.8
See Notes
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CREDS 3.3.9
See Notes
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CREDS 3.3.10
See Notes
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CREDS 4
Shares and deposits
CREDS 4.1
Application and purpose
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Application
CREDS 4.1.1
See Notes
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Purpose
CREDS 4.1.2
See Notes
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CREDS 4.2
Shares
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Maximum shareholdings
CREDS 4.2.1
See Notes
A credit union must not permit a member to have or claim any interest in the shares of the credit union, other than deferred shares, exceeding the greater of:
- (1) £10,000; or
- (2) 1.5 per cent of the total non-deferred shares in the credit union.
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CREDS 4.2.2
See Notes
Where:
- (1) there is an increase in the percentage of the total non-deferred shares in the credit union held by a member; and
- (2) this is the result of a reduction in the total non-deferred shares in the credit union occurring after the time at which that member last acquired shares, or an interest in the shares, of the credit union, other than deferred shares;
that increase in the percentage of the total non-deferred shares in the credit union held by that member must be disregarded for the purposes of the limits in CREDS 4.2.1 R (2) and CREDS 4.2.5 R.
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CREDS 4.2.3
See Notes
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Joint accounts
CREDS 4.2.4
See Notes
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CREDS 4.2.5
See Notes
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Dividends on shares
CREDS 4.2.6
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.
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CREDS 4.2.7
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.
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CREDS 4.3
Deposits
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CREDS 4.3.1
See Notes
- (1) A credit union must not accept deposits except:
- (a) by way of subscription for its shares from persons who may lawfully be admitted to membership of the credit union under the Credit Unions Act 1979 and the rules of the credit union; or
- (b) from persons too young to be members under (2); or
- (c) as loans from persons under CREDS 3.3.1 R to CREDS 3.3.2 G.
- (2) A credit union must not accept deposits exceeding the greater of £10,000 or 1.5 per cent of the total non-deferred shares in the credit union from a person who is under the age at which, by virtue of any provision of the credit union's rules or otherwise, he may lawfully 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.
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CREDS 4.3.2
See Notes
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CREDS 4.3.3
See Notes
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CREDS 4.4
Insurance against fraud or other dishonesty
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CREDS 4.4.1
See Notes
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CREDS 4.4.2
See Notes
In order to comply with CREDS 4.4.1 R, a policy of insurance (subject to the exception in CREDS 4.4.3 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 CREDS 4 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 CREDS 4 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 CREDS 4 Annex 1 R to be met by the credit union.
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CREDS 4.4.3
See Notes
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CREDS 4.4.4
See Notes
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CREDS 4.4.5
See Notes
The tables in CREDS 4 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:
- (1) is needed for its own particular circumstances; and
- (2) should be obtained to cater for actual or projected growth in the "aggregate value" (see paragraph 1 of CREDS 4 Annex 1 R) between "relevant dates" (see paragraph 3 of CREDS 4 Annex 1 R).
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CREDS 4 Annex 1
Insurance against fraud or other dishonesty (see CREDS 4.4.1R)
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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 |
Notes:
|
- 08/01/2012
CREDS 5
Capital
CREDS 5.1
Application and purpose
- 08/01/2012
Application
CREDS 5.1.1
See Notes
- 08/01/2012
Purpose
CREDS 5.1.2
See Notes
- 08/01/2012
CREDS 5.1.3
See Notes
- 08/01/2012
CREDS 5.1.4
See Notes
- 08/01/2012
CREDS 5.1.5
See Notes
- 08/01/2012
CREDS 5.1.6
See Notes
- 08/01/2012
CREDS 5.2
Components of capital
- 08/01/2012
CREDS 5.2.1
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) deferred shares;
- (d) subordinated debt meeting the requirements set out at (4);
- (e) initial capital; and
- (f) revaluation reserves, arising from the differences between book values and the current market values of property fixed assets which:
- (i) meet the requirements in (6) to (7); and
- (ii) are subject to the limit in (8).
- (2) Audited reserves are audited accumulated profits or losses, or both, retained by a credit union after payment of tax, dividends and interest on deposits. Reserves also include other realised gains and gifts of capital, for example from a sponsoring organisation. Deferred shares are included in the meaning of 'capital' but must not be counted twice in the calculation of capital. Where a credit union's audited reserves include sums, equal to the amount paid on deferred shares subscribed for in full, and transferred to the reserves in accordance with section 7(6) of the Credit Unions Act 1979, that amount must not also be counted separately under (1)(c).
- (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. For this purpose, liabilities do not include the items set out in (1)(a) to (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 (6), and the limit in (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 CREDS 8.2.3 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 (1)(a) to (e).
- 08/01/2012
CREDS 5.2.2
See Notes
- 08/01/2012
CREDS 5.2.3
See Notes
- 08/01/2012
CREDS 5.2.4
See Notes
- 08/01/2012
CREDS 5.2.5
See Notes
- 08/01/2012
CREDS 5.2.6
See Notes
- 08/01/2012
CREDS 5.2.7
See Notes
This table belongs to CREDS 5.2.6 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% |
- 08/01/2012
CREDS 5.2.8
See Notes
- (1) When a credit union makes a subordinated loan to another credit union qualifying as capital under CREDS 5.2.1 R (4)(a), the full amount of the loan (not the amount counting towards the borrower's capital under CREDS 5.2.7 R) must be deducted from the lender's capital.
- (2) A subordinated loan within CREDS 5.2.1 R (4)(a) is not an investment under CREDS 3.2.1 R.
- 08/01/2012
CREDS 5.2.9
See Notes
- 08/01/2012
CREDS 5.3
Version 1 credit unions
- 08/01/2012
Requirement to maintain capital assets ratio
CREDS 5.3.1
See Notes
A version 1 credit union must at all times maintain a capital-to-total assets ratio of at least 3%.
[Note: a transitional provision applies to this rule: see CREDS TP 1.1.]
- 08/01/2012
Building reserves
CREDS 5.3.2
See Notes
- 08/01/2012
CREDS 5.3.3
See Notes
- 08/01/2012
CREDS 5.3.4
See Notes
- 08/01/2012
CREDS 5.3.5
See Notes
- 08/01/2012
Minimum initial capital
CREDS 5.3.6
See Notes
- 08/01/2012
CREDS 5.3.7
See Notes
- (1) A version 1 credit union should have initial capital of at least £10,000.
- (2) Contravention of (1) may be relied on as tending to establish contravention of CREDS 5.3.6 R.
- 08/01/2012
CREDS 5.3.8
See Notes
- 08/01/2012
CREDS 5.3.9
See Notes
- 08/01/2012
Capital requirement for certain version 1 credit unions
CREDS 5.3.10
See Notes
- (1) A version 1 credit union must not lend to a member more than £7,500 in excess of the attached shares held by that member, 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 the attached shares held by that member must maintain at all times, while such an amount is outstanding, a capital-to-total assets ratio of at least 5%.
- 08/01/2012
CREDS 5.3.11
See Notes
- 08/01/2012
CREDS 5.3.12
See Notes
- 08/01/2012
Capital requirements for large version 1 credit unions
CREDS 5.3.13
See Notes
- 08/01/2012
CREDS 5.3.14
See Notes
- 08/01/2012
CREDS 5.3.15
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 CREDS 5.4.1 R and CREDS 5.4.2 R (Risk-adjusted capital requirements for version 2 credit unions).
- 08/01/2012
CREDS 5.4
Version 2 credit unions
- 08/01/2012
CREDS 5.4.1
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%.
- (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 to 12 months in arrears).
- 08/01/2012
CREDS 5.4.2
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.
- 08/01/2012
Minimum initial capital
CREDS 5.4.3
See Notes
- 08/01/2012
CREDS 5.4.4
See Notes
- (1) A version 2 credit union should have initial capital of at least £50,000.
- (2) Contravention of (1) may be relied on as tending to establish contravention of CREDS 5.4.3 R.
- 08/01/2012
CREDS 5.4.5
See Notes
- 08/01/2012
CREDS 5.4.6
See Notes
- 08/01/2012
CREDS 6
Liquidity
CREDS 6.1
Application and purpose
- 08/01/2012
Application
CREDS 6.1.1
See Notes
- 08/01/2012
Purpose
CREDS 6.1.2
See Notes
- 08/01/2012
CREDS 6.1.3
See Notes
- 08/01/2012
CREDS 6.2
General requirements
- 08/01/2012
Liquid assets
CREDS 6.2.1
See Notes
- 08/01/2012
CREDS 6.2.2
See Notes
- 08/01/2012
CREDS 6.2.3
See Notes
- 08/01/2012
Liquid management policy statement
CREDS 6.2.4
See Notes
- 08/01/2012
CREDS 6.2.5
See Notes
- 08/01/2012
CREDS 6.2.6
See Notes
- 08/01/2012
CREDS 6.2.7
See Notes
- 08/01/2012
CREDS 6.2.8
See Notes
- 08/01/2012
CREDS 6.2.9
See Notes
- 08/01/2012
CREDS 6.2.10
See Notes
- 08/01/2012
CREDS 6.3
Minimum liquidity requirements
- 08/01/2012
CREDS 6.3.1
See Notes
- 08/01/2012
CREDS 6.3.2
See Notes
A 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.
[Note: a transitional provision applies to this rule: see CREDS TP 1.2.]
- 08/01/2012
CREDS 6.3.3
See Notes
- 08/01/2012
CREDS 6.3.4
See Notes
- (1) For the purposes of CREDS 6.3.1 R and CREDS 6.3.2 R, only those assets will 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.
- 08/01/2012
CREDS 6.3.5
See Notes
- 08/01/2012
CREDS 6.3.6
See Notes
- (1) For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CREDS 6.3.1 R and CREDS 6.3.2 R), the securities referred to in CREDS 3.2.1 R to CREDS 3.2.3 R must 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 CREDS 6.3.6E (1) may be relied on as tending to establish compliance with CREDS 6.3.5 R (the 8-day realisation-value rule).
- 08/01/2012
CREDS 6.3.7
See Notes
- 08/01/2012
CREDS 6.3.8
See Notes
- 08/01/2012
CREDS 6.3.9
See Notes
- 08/01/2012
CREDS 7
Lending to members
CREDS 7.1
Application, purpose and interpretation
- 08/01/2012
Application
CREDS 7.1.1
See Notes
- 08/01/2012
Purpose
CREDS 7.1.2
See Notes
- (1) This chapter seeks to protect the interests of credit unions' members in respect of loans to members under section 11 of the Credit Unions Act 1979. Principle 4 requires credit unions to maintain adequate financial resources and CREDS 5 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 CREDS 3.2.6 G (4).
- 08/01/2012
Interpretation
CREDS 7.1.3
See Notes
The rules and guidance in this chapter are in addition to the provisions of section 11 of the Credit Unions Act 1979 in relation to loans made by credit unions. Under these provisions
- (1) a credit union may make a loan only to:
- (a) a member of the credit union who is an individual; and
- (b) a corporate member of the credit union, if the credit union's rules provide that it may make loans to corporate members and making the loan would not result in the aggregate of the outstanding balances on loans made by the credit union to corporate members exceeding the percentage of the aggregate of the outstanding balances on all loans made by the credit union specified by or under section 11 of the Credit Unions Act 1979;
- (c) other credit unions;
- (2) a credit union may not make a loan to a member of the credit union holding only deferred shares.
- 08/01/2012
CREDS 7.1.4
See Notes
- 08/01/2012
CREDS 7.2
General requirements concerning lending policy
- 08/01/2012
CREDS 7.2.1
See Notes
- 08/01/2012
CREDS 7.2.2
See Notes
- 08/01/2012
CREDS 7.2.3
See Notes
- 08/01/2012
CREDS 7.2.4
See Notes
- 08/01/2012
CREDS 7.2.5
See Notes
- 08/01/2012
CREDS 7.2.6
See Notes
- 08/01/2012
CREDS 7.2.7
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.
- 08/01/2012
CREDS 7.2.8
See Notes
- (1) To prevent conflicts of interest, a credit union should have clear arrangements for dealing with loans to the persons specified in CREDS 7.2.7 R.
- (2) In relation to staff, the prohibition in CREDS 7.2.7 R applies only to those who are officers or approved persons.
- (3) "Connected" in CREDS 7.2.7 R includes any close business or personal relationship.
- 08/01/2012
CREDS 7.2.9
See Notes
- 08/01/2012
CREDS 7.2.10
See Notes
- 08/01/2012
CREDS 7.2.11
See Notes
- 08/01/2012
CREDS 7.2.12
See Notes
- (1) 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.
- (2) A credit union should not make loans to members who are acting together to achieve an aggregate loan that exceeds the limits in CREDS 7.3.
- 08/01/2012
CREDS 7.3
Lending limits
- 08/01/2012
CREDS 7.3.1
See Notes
- 08/01/2012
CREDS 7.3.2
See Notes
- 08/01/2012
CREDS 7.3.3
See Notes
- 08/01/2012
CREDS 7.3.4
See Notes
- 08/01/2012
CREDS 7.3.5
See Notes
- 08/01/2012
CREDS 7.3.6
See Notes
The outstanding balance of a loan by a version 2 credit union to a member must not at any time be more than:
- (1) £15,000 in excess of the attached shares held by that member; or
- (2) an amount equivalent to 1.5% of total non-deferred shares in the credit union in excess of the attached shares held by that member;
whichever is the greater.
- 08/01/2012
CREDS 7.3.7
See Notes
- 08/01/2012
CREDS 7.3.8
See Notes
- 08/01/2012
CREDS 7.4
Large exposures
- 08/01/2012
CREDS 7.4.1
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.
- 08/01/2012
CREDS 7.4.2
See Notes
- 08/01/2012
CREDS 7.4.3
See Notes
- 08/01/2012
CREDS 7.4.4
See Notes
- 08/01/2012
CREDS 7.4.5
See Notes
- 08/01/2012
CREDS 7.4.6
See Notes
- 08/01/2012
CREDS 7.4.7
See Notes
- 08/01/2012
CREDS 7.5
Provisioning
- 08/01/2012
CREDS 7.5.1
See Notes
- 08/01/2012
CREDS 7.5.2
See Notes
A credit union must make specific provision in its accounts for bad and doubtful debts of at least the amounts set out below:
- (1) 35% of the net liability to the credit union of borrowers where the amount is more than three months in arrears; and
- (2) 100% of the net liability to the credit union of borrowers where the amount is more than 12 months in arrears.
- 08/01/2012
CREDS 7.5.3
See Notes
In addition to the requirements of CREDS 7.5.2 R, a credit union should consider making the following specific provisions in its accounts for bad and doubtful debts:
- (1) 60% of the net liability to the credit union of borrowers where the amount is more than six months in arrears; and
- (2) 80% of the net liability to the credit union of borrowers where the amount is more than nine months in arrears.
- 08/01/2012
CREDS 7.5.4
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 CREDS 7.5.2 R.
- (2) Contravention of (1) may be relied on as tending to establish contravention of CREDS 7.5.1 R.
- 08/01/2012
CREDS 7.5.5
See Notes
- 08/01/2012
CREDS 7.5.6
See Notes
- 08/01/2012
CREDS 7.5.7
See Notes
- 08/01/2012
CREDS 7.5.8
See Notes
- (1) CREDS 7.5.2 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 CREDS 7.5.1 R. This will depend on the assessment and judgment referred to in CREDS 7.5.6 G.
- (2)
- (a) Failure to maintain a general provision of the level indicated in CREDS 7.5.4 E creates a presumption that the credit union is not complying with CREDS 7.5.1 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 CREDS 7.5.4 E, that does not necessarily mean that it complies with CREDS 7.5.1 R.
- 08/01/2012
CREDS 7.5.9
See Notes
- 08/01/2012
CREDS 8
Supervision
CREDS 8.1
Application and purpose
- 08/01/2012
Application
CREDS 8.1.1
See Notes
- 08/01/2012
Purpose
CREDS 8.1.2
See Notes
- 08/01/2012
CREDS 8.2
Reporting requirements
- 08/01/2012
Quarterly return
CREDS 8.2.1
See Notes
SUP 16.12.5 R states that a credit union must submit a quarterly return. The content, reporting frequency and due date in relation to that report are shown in CREDS 8.2.2 G. The form can be found at SUP 16 Annex 14(1)R.
[Note: a transitional provision applies in respect of the form to be used at SUP 16 Annex 14(1)R (see CREDS TP 1.4).]
- 08/01/2012
CREDS 8.2.2
See Notes
Content of report | Form | Frequency | Due date |
Key financial data | CQ | Quarterly | One month after quarter end |
- 08/01/2012
Annual return
CREDS 8.2.3
See Notes
SUP 16.12.5 R states that a credit union must submit an annual return. The content, reporting frequency and due date in relation to that report are shown in CREDS 8.2.4 G. The form can be found at SUP 16 Annex 14(2) R.
[Note: transitional provisions apply to the requirement in SUP 16.12.5 R (see ) and in respect of the form to be used at SUP 16 Annex 14(2)R (see )CREDS TP 1.4.]
- 08/01/2012
CREDS 8.2.4
See Notes
Content of report | Form | Frequency | Due date |
Extended financial data | CY | Annually | Six months after financial year end |
- 08/01/2012
CREDS 8.2.5
See Notes
- 08/01/2012
Accounts and audit
CREDS 8.2.6
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.
- (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 CREDS 8.2.3 G), unless they have been submitted already.
- 08/01/2012
CREDS 8.2.7
See Notes
- 08/01/2012
Financial penalties for late submission of reports
CREDS 8.2.8
See Notes
- (1) Financial penalties may be imposed for the late submission of:
- (a) the quarterly and annual returns referred to in SUP 16.12.5 R; and
- (b) the audited accounts referred to in CREDS 8.2.6 R.
- (2) Details of the FSA's policy and procedures on financial penalties are given in DEPP.
- 08/01/2012
CREDS 8.3
Approved persons
- 08/01/2012
CREDS 8.3.1
See Notes
- 08/01/2012
Introduction
CREDS 8.3.2
See Notes
The effect of section 59 of the Act and SUP 10 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. Controlled functions fall within two groups:
- (1) 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.
- (2) 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.
- 08/01/2012
Controlled functions
CREDS 8.3.3
See Notes
- 08/01/2012
CREDS 8.3.4
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.
- 08/01/2012
CREDS 8.3.5
See Notes
SUP 10.7: the required functions:
- (1) SUP 10.7.1 R: the apportionment and oversight function. This is the function of dealing with apportionment of responsibilities under SYSC 4.4.3 R, and of overseeing the establishment and maintenance of systems and controls under SYSC 4.1.1 R.
- (2) SUP 10.7.13 R: the money laundering reporting function. This is the function of acting in the capacity of the money laundering reporting officer of a credit union.
- 08/01/2012
CREDS 8.3.6
See Notes
SUP 10.8: the systems and controls function. This is the function of acting as an employee with responsibility for reporting to the committee of management in relation to:
- (1) the credit union's financial affairs; or
- (2) setting and controlling its risk exposure; or
- (3) adherence to internal systems and controls, procedures and policies.
- 08/01/2012
CREDS 8.3.7
See Notes
- 08/01/2012
CREDS 8.3.8
See Notes
- 08/01/2012
CREDS 9
Complaints reporting rules for credit unions
CREDS 9.1
Application and purpose
- 08/01/2012
Application
CREDS 9.1.1
See Notes
- 08/01/2012
Purpose
CREDS 9.1.2
See Notes
- 08/01/2012
CREDS 9.1.3
See Notes
- 08/01/2012
CREDS 9.1.4
See Notes
- 08/01/2012
CREDS 9.2
Reporting
- 08/01/2012
CREDS 9.2.1
See Notes
A credit union must provide the FSA, once a year, with a report in the format set out in CREDS 9 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;
- (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) outstanding at the start of the reporting period; and
- (4) the total amount of redress paid in respect of complaints during the reporting period.
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CREDS 9.2.2
See Notes
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CREDS 9.2.3
See Notes
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CREDS 9.2.4
See Notes
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CREDS 9.2.5
See Notes
For the purposes of CREDS 9.2.4 R:
- (1) a complaint received on any day other than a business day, or after close of business on a business day, may be treated as received on the next business day; and
- (2) a complaint is resolved where the complainant has indicated acceptance of a response from the credit union, with neither the response nor acceptance having to be in writing.
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CREDS 9.2.6
See Notes
For the purpose of CREDS 9.2.1 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 CREDS 9.2.1R (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, or where the credit union does not have enough information to make a decision yet chooses to make a goodwill payment to the complainant, the credit union should treat the 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 CREDS 9.2.1R (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 CREDS 9.2.1R (4), such redress should 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.
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CREDS 9.2.7
See Notes
For the purposes of CREDS 9.2.1 R:
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CREDS 9.2.8
See Notes
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CREDS 9.2.9
See Notes
For the purposes of making reports under CREDS 9.2.1 R, a closed complaint is a complaint:
- (1) where the credit union has sent a final response; or
- (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.
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CREDS 9.2.10
See Notes
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CREDS 9.2.11
See Notes
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CREDS 9.2.12
See Notes
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CREDS 9.2.13
See Notes
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CREDS 9 Annex 1
Credit union complaints return
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See Notes
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CREDS 10
Application of other parts of the Handbook to Credit unions
CREDS 10.1
Application and purpose
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Application
CREDS 10.1.1
See Notes
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Purpose
CREDS 10.1.2
See Notes
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Application of other parts of the Handbook and of Regulatory Guides to Credit Unions
CREDS 10.1.3
See Notes
Module | Relevance to Credit Unions |
The Principles for Businesses (PRIN) | The Principles for Businesses (PRIN) set 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. 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. |
Senior Management Arrangements, Systems and Controls (SYSC) | SYSC 1 and SYSC 4 to 10 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. |
Threshold Conditions (COND) | In order to become authorised under the Act all firms must meet the threshold conditions. 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). |
Statements of Principle and Code of Practice for Approved Persons (APER) | The purpose of the Statements of Principle contained in APER 2 is to provide guidance to approved persons in relation to the conduct expected of them in the performance of a controlled function. The Code of Practice for Approved Persons sets out descriptions of conduct which, in the opinion of the FSA, do not comply with a Statement of Principle and, in the case of Statement of Principle 3, conduct which tends to show compliance within that statement. |
The Fit and Proper test for Approved Persons (FIT) | The purpose of FIT 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. The criteria are also relevant in assessing the continuing fitness and propriety of persons who have already been approved. |
General Provisions (GEN) | GEN contains rules and guidance on general matters, including interpreting the Handbook, statutory status disclosure, the FSA logo and insurance against financial penalties. |
Fees manual (FEES) | This manual sets out the fees applying to credit unions. |
Conduct of Business sourcebook (COBS) | A credit union which acts as a CTF provider or provides a cash-deposit ISA will need to be aware of the relevant requirements in COBS. COBS 4.6 (Past, simulated past and future performance), COBS 4.7.1 R (Direct offer financial promotions), COBS 4.10 (Systems and controls and approving and communicating financial promotions), COBS 13 (Preparing product information) and COBS 14 (Providing product information to clients) apply with respect to accepting deposits as set out in those provisions, COBS 4.1 and BCOBS. |
Banking: Conduct of Business sourcebook (BCOBS) | BCOBS sets out rules and guidance for credit unions on how they should conduct their business with their customers. In particular there are rules and guidance relating to communications with banking customers and financial promotions (BCOBS 2), distance communications (BCOBS 3), information to be communicated to banking customers (BCOBS 4), post sale requirements (BCOBS 5), and cancellation (BCOBS 6). BCOBS 5.1.13 R (Value dating) does not apply to credit unions. The rules in BCOBS 3.1 that relate to distance contracts for accepting deposits are likely to 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 or the Internet, the provisions will not be relevant. |
Supervision manual (SUP) | The following provisions of SUP are relevant to credit unions: SUP 1 (The FSA approach to supervision), SUP 2 (Information gathering by the FSA on its own initiative), SUP 3.1 to SUP 3.8 (Auditors), SUP 5 (Skilled persons), SUP 6 (Applications to vary or cancel Part IV permission), SUP 7 (Individual requirements), SUP 8 (Waiver and modification of rules), SUP 9 (Individual guidance), SUP 10 (Approved persons), SUP 11 (Controllers and Close links), SUP 15 (Notifications to the FSA) and SUP 16 (Reporting Requirements). Credit unions are reminded that they 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. It may be unlikely, in practice, that credit unions will develop such relationships. It is possible, however, that a person may acquire control of a credit union within the meaning of the Act by reason of holding the prescribed proportion of deferred shares in the credit union. In relation to SUP 16, credit unions are exempted from the requirement to submit annual reports of controllers and close links. |
Decision, Procedure and Penalties manual (DEPP) | DEPP is relevant to credit unions because it sets out: (1) the FSA's decision-making procedure for giving statutory notices. These are warning notices, decision notices and supervisory notices (DEPP 1.2 to DEPP 5); and (2) the FSA's policy with respect to the imposition and amount of penalties under the Act (see DEPP 6). |
Dispute Resolution: Complaints (DISP) | DISP sets out rules and guidance in relation to treating complainants fairly and the Financial Ombudsman Service. |
Compensation (COMP) | COMP sets out rules relating to the scheme for compensating consumers when authorised firms are unable, or likely to be unable, to satisfy claims against them. |
Complaints against the FSA (COAF) | This relates to complaints against the FSA. |
The Enforcement Guide (EG) | The Enforcement Guide (EG) describes the FSA's approach to exercising the main enforcement powers given to it by the Act and by regulation 12 of the Unfair Terms Regulations. |
Financial crime: a guide for firms (FC) | FC provides guidance on steps that a firm can take to reduce the risk that it might be used to further financial crime. |
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CREDS App 1
Key Definitions
CREDS App 1.1
Key Definitions
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attached shares | means any shares in the credit union (other than any deferred shares): | |
(a) | the withdrawal of which is not permitted by section 7 (5) of the Credit Unions Act 1979; or | |
(b) | the withdrawal of which is not permitted by the terms of a loan made to a member; or | |
(c) | the withdrawal of which is not permitted without seeking and obtaining the permission of the committee of management of the credit union. | |
Paragraph (c) of this definition is relevant only where the credit union made a loan to the holder of the shares before the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 came into force. | ||
complaint | any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service, which: | |
(a) | alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience; and | |
(b) | relates to an activity of that respondent, or of any other respondent with whom that respondent has some connection in marketing or providing financial services or products, which comes under the jurisdiction of the Financial Ombudsman Service. | |
CREDS | the Credit Unions New sourcebook. | |
deferred shares | in relation to a credit union, means any shares of a class defined as deferred shares by section 31A of the Credit Unions Act 1979. | |
final response | (in CREDS 9) a written response from a respondent which: | |
(a) | accepts the complaint, and, where appropriate, offers redress or remedial action; or | |
(b) | offers redress or remedial action without accepting the complaint; or | |
(c) | rejects the complaint and gives reasons for doing so; | |
and which informs the complainant that, if he remains dissatisfied with the firm's response, he may now refer his complaint to the Financial Ombudsman Service and must do so within six months. | ||
net liability | means the outstanding balance of any loan made to the borrower and any interest or charges on that loan that are due but unpaid, less any attached shares held by the borrower. | |
total non-deferred shares | means the total of members' share balances in a credit union shown in the most recent annual return to have been sent to the FSA under SUP 16.12.5 R (see CREDS 8.2.3 G), excluding any deferred shares in the credit union. | |
total relevant liabilities | means the sum of: | |
(a) | unattached shares in the credit union, and deposits by persons too young to be members of the credit union; and | |
(b) | liabilities (other than liabilities for shares) with an original or remaining maturity of less than three months (including overdrafts and instalments of loans). | |
unattached shares | means the total shares in the credit union other than any attached shares or deferred shares. |
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Transitional Provisions and Schedules
CREDS TP 1
Transitional Provision
(1) | (2) | (3) | (4) | (5) | (6) | |||
Materials to which the transitional provision applies | Transitional Provision | Transitional provisions: dates in force | Handbook provisions: coming into force | |||||
1 | CREDS 5.3.1 R | R | A version 1 credit union need not comply with CREDS 5.3.1 R until midnight on 30 September 2014. CRED 8.3.1 R, as it was in force on 31 December 2011, will apply from the beginning of this transitional period until midnight on 30 September 2012. From midnight on that day until midnight on 30 September 2013, the version 1 credit union must at all times maintain a capital-to-total assets ratio of at least 1%. From midnight on 30 September 2013 until the end of this transitional period at midnight on 30 September 2014, the version 1 credit union must at all times maintain a capital-to-total assets ratio of at least 2%. | From midnight on 30 September 2012 to midnight on 30 September 2014 | 8 January 2012 | |||
2 | CREDS 6.3.2 R | R | A version 2 credit union need not comply with CREDS 6.3.2 R until midnight on 30 September 2014. From midnight on 30 September 2012 until midnight on 30 September 2013, the version 2 credit union must hold enough liquid assets to ensure that on no two consecutive quarter ends is the level of the credit union's liquid assets below 6% of its total relevant liabilities. From midnight on 30 September 2013, until the end of this transitional period at midnight on 30 September 2014, the version 2 credit union must hold enough liquid assets to ensure that on no two consecutive quarter ends is the level of the credit union's liquid assets below 8% of its total relevant liabilities. | From midnight on 30 September 2012 to midnight on 30 September 2014 | 8 January 2012 | |||
3 | SUP 16.12.7 R | R | The change in the applicable due date for the submission by a credit union of an annual return under SUP 16.12.5 R from 7 months to 6 months does not apply to an annual return in respect of the financial year ending on or before 31 July 2012. | 31 July 2012 | 8 January 2012 | |||
4 | SUP 16 Annex 14 R | R | SUP 16 Annex 14 R, as it was in force on 31 December 2011, continues to apply to:
(i) quarterly returns for credit unions in respect of the quarter ending on or before 31 December 2011, and
(ii) annual returns in respect of the financial year ending on or before 7 January 2012
|
8 January 2012 | 8 January 2012 |
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CREDS Sch 1
Record keeping requirements
- 08/01/2012
CREDS Sch 1.1
See Notes
- 08/01/2012
CREDS Sch 2
Notification requirements
- 08/01/2012
CREDS Sch 2.1
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.
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CREDS Sch 2.2
See Notes
Handbook reference | Matter to be notified | Contents of notification | Trigger event | Time allowed |
CREDS 2.2.4 R CREDS 2.2.52 G |
Business plan | Copy of business plan | Upon request Version 2 credit unions should submit after adoption and/or amendment |
As soon as reasonably practical |
CREDS 2.2.6 R CREDS 2.2.60 G |
Policies and procedures manual | Copy of policies and procedures manual. Wide range of detail as specified as guidance in CREDS 2 | Upon request Version 2 credit unions should submit after adoption and/or amendment |
As soon as reasonably practical |
CREDS 3.3.10 R | Financial risk Management Policy | Statement of financial risk management policy | Version 2 credit unions must submit after adoption and/or amendment | As soon as reasonably practicable |
CREDS 5.2.3 G | General notification | Any proposed repayment of subordinated debt | As soon as credit union aware | At least one month in advance of proposed repayment |
CREDS 6.2.5 R | Liquidity | Liquidity Management Policy Statement | Version 2 credit unions must submit after adoption and/or amendment | As soon as reasonably practical |
CREDS 7.2.1 R to CREDS 7.2.2 R | Lending policy | Current lending policy statement | Version 2 credit unions must submit after adoption and/or amendment | As soon as reasonably practical |
CREDS 7.4.6 G | Large exposures | Limits on large exposures to avoid concentration of risk | Upon request | As soon as reasonably practical |
CREDS 8.2.1 G | Quarterly return | Key financial data | Quarter end | 1 month after quarter end |
CREDS 8.2.3 G | Annual return | Extended financial data | Financial year end | 6 months after financial year end |
CREDS 8.2.6 R | Audited accounts | Revenue account and balance sheet | Financial year end | Until submission of annual return |
CREDS 9.2.1 R | Complaints report | Analysis of complaints | 31 March each year | 1 month after period end |
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CREDS Sch 3
Fees and other required payments
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CREDS Sch 3.1
See Notes
There are no requirements for fees or other payments in CREDS.
The table below summarises the fee requirements for credit unions detailed elsewhere.
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CREDS Sch 3.2
See Notes
Description of fee | Reference |
FSA rules relating to authorisation fees | FEES 3 |
Schedule of authorisation fees payable | FEES 3 Annex 1 |
FSA fees rules relating to the periodic fee | FEES 4 |
Schedule of periodic fees payable | FEES 4 Annex 2 R Part 1 |
FOS funding rules | FEES 5 |
FSCS funding rules | FEES 6 |
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CREDS Sch 4
Powers exercised
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CREDS 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 CREDS: | |
Section 138 (General rule-making power) | |
Section 149 (Evidential provisions) | |
Section 156 (General supplementary powers) | |
Section 213 (The compensation scheme) | |
Section 214 (General) | |
Section 226 (Compulsory jurisdiction) | |
Paragraph 13 (Compulsory jurisdiction) of Schedule 17 (The Ombudsman Scheme) |
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CREDS Sch 4.2
See Notes
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CREDS Sch 5
Rights of actions for damages
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CREDS Sch 5.1
See Notes
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.
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CREDS 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 CREDS with the status letter 'E'. | No | No | No | ||
All rules in CREDS that require a credit union to have or maintain financial resources. | No | No | No | ||
All other rules in CREDS. | Yes | No | No |
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CREDS Sch 6
Rules that can be waived
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CREDS Sch 6.1
See Notes
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