CRED 5
Threshold conditions
CRED 5.1
Application and purpose
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CRED 5.1.1
See Notes
This
chapter applies to all credit
unions. It also applies to any person seeking to become authorised as a credit union.
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CRED 5.1.2
See Notes
The purpose of this chapter is to provide
additional guidance to credit unions on the
basic requirements that all credit
unions must meet if they are to be allowed to carry on a regulated activity.
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CRED 5.1.3
See Notes
Schedule 6 to the Act sets out the threshold conditions for authorisation. COND contains guidance for all firms on the threshold conditions.
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CRED 5.1.4
See Notes
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CRED 5.1.5
See Notes
The threshold
conditions must be met on a continuing basis by credit unions. Failure
to meet one of the conditions is sufficient grounds for the exercise by the FSA of its powers. ENF 1 provides an overview of the range and purpose of
these powers, the FSA's approach
to enforcement and the structure of the Enforcement manual.
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CRED 5.2
The Conditions
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CRED 5.2.1
See Notes
Schedule 6 to the Act and COND set out the threshold conditions in full. They are:
- (1) Threshold condition 1: Legal status. This sets out a number of conditions for legal form. A credit union by definition will comply.
- (2) Threshold condition 2: Location of offices. A regulated UK credit union must have its head office and registered office in the United Kingdom. This general requirement in the Act is aimed at ensuring that firms are organised in a way that can be effectively supervised. The Credit Unions Act 1979 applies a specific requirement: the registered office of a credit union has to be in Great Britain; Northern Ireland credit unions are covered by separate legislation. (See CRED 1.1.1 G(2) for the definition of the italicised term credit union).
- (3) Threshold condition 3: Close links. This condition requires the FSA to be satisfied that it can effectively supervise a firm, taking into account the structure of the group to which it belongs or the other firms to which it has close links. This will have little relevance to credit unions because of the way they are constituted.
- (4) Threshold condition 4: Adequate resources. The adequate resources condition has a wide meaning. The FSA will interpret the term 'adequate' as meaning sufficient in terms of quantity, quality and availability, and 'resources' as including all financial resources, non-financial resources and means of managing its resources; for example, capital, provisions against liabilities, liquidity and human resources. Detailed financial resources and systems requirements for credit unions can be found in CRED 4, CRED 8, and CRED 9. The FSA will consider whether a credit union is ready, willing and organised to comply with these requirements when assessing if it has adequate resources for the purposes of this threshold condition.
- (5) Threshold condition 5: Suitability. Essentially, this condition requires the FSA to be satisfied that a credit union is 'fit and proper' to be authorised and permitted to carry on the relevant activities. It will therefore have regard to all relevant matters. These will include whether there are any indications that the credit union will not be able to meet its debts as they fall due, and whether the credit union has taken reasonable steps to identify and measure any risks of regulatory concern. It will also include the credit union's connection with any person.
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CRED 5.2.2
See Notes
The first two threshold conditions prescribe objective
criteria to be satisfied there is no room for judgment on the part of the FSA. Threshold condition 4 and threshold condition 5 set new formal conditions
for credit unions.
In both cases, what is required will depend upon such matters as the size
of the credit union and
the activities it wishes to carry on.
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CRED 5.2.3
See Notes
Where a credit union may no longer meet the threshold conditions (see ENF) the FSA will make further enquiries. This might include the provision of a report by a skilled person or the FSA exercising its formal enforcement powers. In any situation where the FSA may need to consider the use of its powers as a result of the failure of a credit union to meet one of these conditions, the FSA will have regard to the principles underlying the FSA's approach to the use of these powers. These principles include transparency, proportionality and consistency.
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CRED 5.2.4
See Notes
The FSA has
the power to vary a credit
union's Part
IV permission on its own initiative (see ENF 3.2), if it appears to the FSA that the credit union is failing, or is likely to
fail, to satisfy the threshold
conditions (see
ENF 3.2
).
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