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CRED 5.1 Application and purpose

CRED 5.1.1 G

This chapter applies to all credit unions. It also applies to any person seeking to become authorised as a credit union.

CRED 5.1.2 G

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.

CRED 5.1.3 G
CRED 5.1.4 G

In order to become authorised under the Act all firms must meet the threshold conditions.

CRED 5.1.5 G

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).1


CRED 5.2 The Conditions

CRED 5.2.1 G

Schedule 6 to the Act and COND set out the threshold conditions in full. They are:

  1. (1)

    Threshold condition 1: Legal status. This sets out a number of conditions for legal form. A credit union by definition will comply.

  2. (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. (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. (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. (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.1

CRED 5.2.2 G

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.

CRED 5.2.3 G

Where a credit union may no longer meet the threshold conditions (see EG)2 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.

CRED 5.2.4 G

The FSA has the power to vary a credit union's Part IV permission on its own initiative, if it appears to the FSA that the credit union is failing, or is likely to fail, to satisfy the threshold conditions (see EG2).

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