Supervision

Part

CRED Credit Unions

Chapter

Supervision

Printed on: 08/12/2024

Rulebook at: 06/10/2007

CRED 14

Supervision

CRED 14.1

The FSA's approach to supervision

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Application and purpose

CRED 14.1.1

This section and SUP 1 apply to all credit unions.

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CRED 14.1.2

This section is a summary of SUP 1.

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CRED 14.1.3

The Act requires the FSA to "maintain arrangements designed to enable it to determine whether persons on whom requirements are imposed by or under this Act are complying with them" (paragraph 6(1) of Schedule 1 to the Act).

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CRED 14.1.4

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.

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CRED 14.1.5

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.

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The FSA's risk based approach to supervision

CRED 14.1.6

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.

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Tools of supervision

CRED 14.1.7

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.

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CRED 14.1.8

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.

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CRED 14.1.9

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.

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CRED 14.1.10

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.

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CRED 14.1.11

For further discussion of the FSA's regulatory approach, see Publications on the FSA website: in particular, "A new regulator for the new millennium" and "Building the new regulator progress report 1".

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CRED 14.2

Information gathering by the FSA on its own initiative

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Application and purpose

CRED 14.2.1

This section and SUP 2 apply to all credit unions.

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CRED 14.2.2

The section is a summary of SUP 2.

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CRED 14.2.3

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.

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CRED 14.2.4

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.

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CRED 14.2.5

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.

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CRED 14.2.6

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.

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Information gathering by the FSA on its own initiative: background

CRED 14.2.7

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.

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CRED 14.2.8

When the FSA obtains confidential information using the methods of information gathering described in SUP 2, it is obliged to treat that information as confidential and will not disclose it without lawful authority, for example the consent of the person from whom that information was received.

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Information gathering by the FSA on its own initiative: cooperation by credit unions

CRED 14.2.9

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:

(1) supervision visits on a regular or sample basis;
(2) meetings at the FSA's offices or elsewhere;
(3) provision of information or documents.

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CRED 14.2.10

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.

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CRED 14.2.11

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.

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CRED 14.2.12

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.

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"Mystery Shopping"

CRED 14.2.13

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 ).

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CRED 14.3

Auditors

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Application and purpose

CRED 14.3.1

This section and SUP 3 apply to all credit unions and their external auditors appointed under SUP 3.3.

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CRED 14.3.2

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.

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Appointment of auditors

CRED 14.3.3

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 G CRED 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.

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CRED 14.3.4

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).

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Auditors' qualifications

CRED 14.3.5

SUP 3.4 sets out rules and guidance aimed at ensuring that the auditor of a credit union has the necessary skill and experience.

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CRED 14.3.6

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.

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CRED 14.3.7

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.

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CRED 14.3.8

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.

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CRED 14.3.9

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.

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CRED 14.3.10

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.

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CRED 14.3.11

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.

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Auditors' independence

CRED 14.3.12

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.

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CRED 14.3.13

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.

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CRED 14.3.14

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.

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CRED 14.3.15

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.

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Credit unions' cooperation with their auditors

CRED 14.3.16

SUP 3.6.1 R states that a credit union must cooperate with its auditor in the discharge of his duties under that chapter.

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CRED 14.3.17

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.

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CRED 14.3.18

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.

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CRED 14.3.19

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.

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Notification of matters raised by auditor

CRED 14.3.20

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.

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CRED 14.3.21

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.

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Rights and duties of all auditors

CRED 14.3.22

The auditor of a credit union has various rights and duties to obtain information from the credit union.

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CRED 14.3.23

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.

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CRED 14.3.24

The FSA may ask the auditor to attend meetings and to supply it with information about the credit union.

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CRED 14.3.25

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.

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CRED 14.3.26

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.

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CRED 14.3.27

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.

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CRED 14.3.28

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.

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CRED 14.3.29

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.

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CRED 14.3.30

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.

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CRED 14.3.31

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.

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CRED 14.4

Skilled persons

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Application and purpose

CRED 14.4.1

This section and SUP 5 apply to all credit unions.

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CRED 14.4.2

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).

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The FSA's power

CRED 14.4.3

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.

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Policy on the use of skilled persons

CRED 14.4.4

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).

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Appointment and reporting process

CRED 14.4.5

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.

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Duties of a credit union

CRED 14.4.6

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.

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CRED 14.4.7

SUP 5.5.11 G states that a credit union must provide all reasonable assistance to the skilled person.

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Confidential information privilege

CRED 14.4.8

SUP 5.6 explains what confidentiality provisions apply when the FSA passes on relevant information to a skilled person.

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CRED 14.5

Applications to vary or cancel Part IV permission

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Application and purpose

CRED 14.5.1

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.

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CRED 14.5.2

This section is a summary of SUP 6.

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CRED 14.5.3

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.

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CRED 14.5.4

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.

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Introduction

CRED 14.5.5

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.

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Applications for variation of permission

CRED 14.5.6

A credit union may apply to the FSA to vary its Part IV permission.

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CRED 14.5.7

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).

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CRED 14.5.8

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.

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CRED 14.5.9

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.

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CRED 14.5.10

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.

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CRED 14.5.11

The FSA may vary or impose limitations or requirements on a credit union's permission.

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CRED 14.5.12

The FSA has six months to consider a completed application, or 12 months if the application in incomplete.

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CRED 14.5.13

Within these time limits, however, the length of the process will vary according to the complexity of the variation requested.

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CRED 14.5.14

At any time after receiving an application and before determining it, the FSA may require the applicant to provide additional information or documents. The circumstances of each application will dictate what additional information or procedures are appropriate.

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Applications for cancellation of permission

CRED 14.5.15

If a credit union with a Part IV permission applies to the FSA, the FSA may cancel its permission.

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CRED 14.5.16

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.

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CRED 14.5.17

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.

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CRED 14.5.18

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.

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CRED 14.5.19

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.

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CRED 14.5.20

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.

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CRED 14.5.21

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.

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CRED 14.5.22

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.

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CRED 14.5.23

The FSA may require additional information, including professional advice where it considers this appropriate.

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CRED 14.5.24

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.

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CRED 14.5.25

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.

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CRED 14.5.26

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.

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CRED 14.5.27

The FSA has six months to consider a completed application or 12 months if the application is incomplete.

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CRED 14.5.28

Within these time limits, however, the length of the process will vary according to the complexity of the circumstances.

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Ending authorisation

CRED 14.5.29

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.

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Additional guidance

CRED 14.5.30

SUP 6 Annex 4 provides additional guidance for a credit union winding down (running off) its business.

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CRED 14.5.31

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.

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CRED 14.5.32

A credit union should discuss its plans with its usual supervisory contact at the FSA.

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CRED 14.5.33

The FSA may vary a credit union's permission to impose a limitation on accepting new deposits.

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CRED 14.5.34

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.

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CRED 14.6

Individual requirements

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Application and purpose

CRED 14.6.1

This section and SUP 7 apply to all credit unions.

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CRED 14.6.2

This section is a summary of SUP 7.

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CRED 14.6.3

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.

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The FSA's powers to set individual requirements on its own initiative

CRED 14.6.4

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.

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CRED 14.6.5

If the FSA exercises its powers, it will do so by issuing a supervisory notice.

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CRED 14.6.6

A credit union may refer this decision to the Financial Services and Markets Tribunal.

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Criteria for varying a credit union's permission

CRED 14.6.7

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.

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CRED 14.6.8

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.

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CRED 14.6.9

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.

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CRED 14.6.10

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.

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CRED 14.7

Waiver and modification of rules

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Application and purpose

CRED 14.7.1

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.

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CRED 14.7.2

This section is a summary of SUP 8, and explains how the regime for the waiver or modification of rules works.

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Introduction

CRED 14.7.3

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.

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CRED 14.7.4

SUP 8.2.7 includes a table of the types of rules which may be waived and Schedule 6 identifies those rules in CRED that can be waived.

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Applying for a waiver

CRED 14.7.5

SUP 8.3.1 states that the FSA may not give a waiver unless it is satisfied that:

(1) compliance would be unduly burdensome or would not achieve the purpose for which the rules were made;
(2) the waiver would not result in undue risk to persons whose interests the rules are intended to protect.

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CRED 14.7.6

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]

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CRED 14.7.7

The FSA will acknowledge applications and seek to reply within 20 working days, though this may take longer if further information is required.

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CRED 14.7.8

The FSA may impose conditions on a waiver including extra reporting requirements.

01/12/2004

CRED 14.7.9

If the FSA decides against the waiver, it will give its reasons.

01/12/2004

CRED 14.7.10

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

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

The FSA is bound to publish a waiver, unless it is inappropriate or unnecessary. If the FSA publishes a waiver, it will not publish details of why a waiver was required or any of the supporting information given in a waiver application.

01/12/2004

CRED 14.7.13

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

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

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

The FSA may revoke a waiver if it is no longer appropriate. This may take effect immediately, if that is necessary to prevent undue risk to members.

01/12/2004

CRED 14.7.17

Where revocation is not immediate, the FSA will give written notice, with a reasonable period (usually 28 days) in which to make representations. After considering any representations the FSA will give written confirmation of its decision.

01/12/2004

CRED 14.7.18

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

CRED 14.7.19

The waivers regime will be overseen by a staff committee of the FSA.

01/12/2004

CRED 14.8

Individual guidance

01/12/2004

Application and purpose

CRED 14.8.1

This section and SUP 9 apply to all credit unions and persons generally.

01/12/2004

CRED 14.8.2

This section is a summary of SUP 9.

01/12/2004

CRED 14.8.3

This section explains how a particular person may seek from the FSA guidance that relates to its own particular circumstances or plans.

01/12/2004

Making a request for individual guidance

CRED 14.8.4

Requests may be either oral or written.

01/12/2004

CRED 14.8.5

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

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

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

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

CRED 14.8.9

SUP 9.4 explains what reliance can be placed on individual guidance.

01/12/2004

CRED 14.8.10

If a person acts in accordance with current individual written 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 14.8.11

Rights conferred on third parties 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; a person may need to seek his own legal advice.

01/12/2004

CRED 14.8.12

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

If the circumstances relating to individual guidance change it will be open to a person to ask for further guidance.

01/12/2004

CRED 14.9

Notifications to the FSA

01/12/2004

Application and purpose

CRED 14.9.1

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

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

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.

01/12/2004

CRED 14.9.4

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

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

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

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

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

Notification should include details of the matter and an estimate of the likely financial consequences.

01/12/2004

CRED 14.9.10

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

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

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

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

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

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

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

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

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

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

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

This section, SUP 16.7.1 G - SUP 16.7.4 G, and SUP 16.7.15AR - SUP 16.7.15DR apply to all credit unions.

01/12/2004

CRED 14.10.2

This section is a summary of those parts of SUP that apply to every credit union.

01/12/2004

CRED 14.10.3

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

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

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

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

(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

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 16.7 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 16.7 may also lead to the imposition of a financial penalty and other disciplinary sanctions (see DEPP ).

28/08/2007

CRED 14.10.4E

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

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

(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

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

SUP 16.7.62 states that a credit union must submit a quarterly return.

01/12/2004

CRED 14.10.6

This table belongs to CRED 14.10.5G

Content of report

Form

Frequency

Due date

Key financial data

Quarterly

One month after quarter end

01/12/2004

Annual return

CRED 14.10.7

SUP 16.7.62 states that a credit union must submit an annual return.

01/12/2004

CRED 14.10.8

This table belongs to CRED 14.10.7G

Content of report

Form

Frequency

Due date

Extended financial data

Annually

Seven months after financial year end

01/12/2004

CRED 14.10.8A

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

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

(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 16.7.62 (see CRED 14.10.7 G), unless they have been submitted already.

01/12/2004

CRED 14.10.11

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

(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

(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

Introduction

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

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

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

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

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

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.

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

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

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.

01/12/2004