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CRED 9.1 Application, purpose and interpretation

CRED 9.1.1 R

This chapter applies to all credit unions.

CRED 9.1.2 G

This chapter amplifies Principle 4 under which a credit union must maintain adequate financial resources and the threshold condition for permission that a credit union's resources must be adequate in relation to the regulated activities that it carries on.

CRED 9.1.3 G

A central feature of credit union business is maturity transformation. That is taking short term deposits (in the form of share accounts) from members and making comparatively long-term loans. It is important, in order to maintain confidence and protect members, that a credit union has adequate liquid assets (liquidity) to enable it to fulfil members' withdrawal requests within expected timeframes.

CRED 9.1.4 G

The liquid assets held by a credit union should be sufficient to meet its day-to-day business needs and to provide an appropriate cushion in the event of pressure arising from unexpected events.

CRED 9.1.5 R

"Unattached shareholding" means the amount by which the member's savings with the credit union exceeds the amount which, under the terms of section 7 of the Credit Unions Act 1979, he cannot withdraw at all or he cannot withdraw without first of all obtaining the permission of the committee of management of the credit union.

CRED 9.1.6 G
  1. (1)

    Under section 7 of the Credit Unions Act 1979, if a withdrawal of shares would reduce the member's savings with the credit union to less than his total liability (including contingent liability) to the credit union whether as borrower, guarantor or otherwise then:

    1. (a)

      if there is a loan to the member which is treated as under section 11A of the Credit Unions Act 1979, the withdrawal is not permitted; and

    2. (b)

      in any other case, the withdrawal is permitted only at the discretion of the committee of management of the credit union.

  2. (2)

    'Unattached shareholding' is intended to refer to that portion of a member's savings the withdrawal of which is not restricted by section 7.

CRED 9.1.7 R

'Total relevant liabilities' means the sum of:

  1. (1)

    unattached shareholdings in the credit union, and deposits by persons too young to be members of the credit union; and1

  2. (2)

    liabilities (other than liabilities for shares) with an original or remaining maturity of less than three months (including overdrafts and instalments of loans).1

CRED 9.2 General requirements

CRED 9.2.1 R

A credit union must hold liquid assets of an amount and composition that is prudent and appropriate to the scale and nature of its business, having regard to material risks, including the risk of a sudden adverse cash flow, with a view to enabling it to meet its objective.

CRED 9.2.2 R

A credit union must establish, maintain and implement an up-to-date liquidity management policy statement approved by the committee of management and designed to ensure its compliance with CRED 9.2.1 R.

CRED 9.2.3 R

A version 2 credit union must send to the FSA a copy of its liquidity management policy statement as soon as is reasonably practicable after approval by the committee of management.

CRED 9.2.4 G

The responsibility for ensuring that a credit union can meet its obligations as they fall due rests with the credit union's management.

CRED 9.2.5 G

A credit union should be able to satisfy the FSA on a continuing basis that it has a prudent liquidity management policy and adequate management systems in place to ensure that the policy is adhered to.

CRED 9.2.6 G

The liquidity management policy statement of a credit union should set out the credit union's objectives for liquidity, the limits within which liquidity should be maintained, and the types of liquid assets which the credit union should hold.

CRED 9.2.7 G

A credit union's committee of management should review and approve its liquidity management policy statement at least once a year, and more frequently if necessary, especially in light of significant changes in business.

CRED 9.2.8 G

Where a version 2 credit union has borrowed wholesale funds, the maturity of such funds and the risk of their not being able to be refinanced should be taken into account in the formulation of the credit union's liquidity management policy statement.

CRED 9.2.9 G

1When a credit union provides ancillary services such as issuing and administering means of payment and money transmission, it should take into account the potentially greater volatility of its funds when deciding what amount and composition of liquid assets is necessary to comply with CRED 9.2.1 R.

CRED 9.3 Minimum liquidity requirements

CRED 9.3.1 G

The liquidity requirements set out in CRED 9.3.2 RCRED 9.3.5 R are minimum requirements and are subject to the overarching requirement of CRED 9.2.1 R.

CRED 9.3.2 R

A credit union must at all times hold liquid assets of a value equal to at least 5% of its total relevant liabilities.

CRED 9.3.3 R

A version 1 credit union must further hold enough liquid assets to ensure that on no two consecutive quarter ends is the level of the credit union's liquid assets below 10% of its total relevant liabilities.

CRED 9.3.4 R

[Deleted]1

CRED 9.3.5 R

[Deleted]1

CRED 9.3.6 G

[Deleted]1

CRED 9.3.7 R
  1. (1)

    For the purposes of CRED 9.3.2 R - CRED 9.3.5 R, only those assets shall count as liquid which can be realised for cash at short notice, and within at most eight days.3

  2. (2)

    Amounts loaned by one credit union to another must not be counted as liquid by the lender.3

CRED 9.3.8 R

For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CRED 9.3.2 RCRED 9.3.5 R), assets shall be valued at the amount for which they could be realised within eight days.

CRED 9.3.9 E
  1. (1)

    For the purposes of calculating the ratio of a credit union's liquid assets to its total relevant liabilities (in CRED 9.3.2 RCRED 9.3.5 R), the securities referred to in CRED 7.2.1 RCRED 7.2.3 R should be valued on the basis that they could be realised at market value2 minus the following discounts (whether or not this is the case in fact):

    1. (a)

      maturity less than 1 year - zero;

    2. (b)

      maturity 1 to 5 years - 5%.

  2. (2)

    Compliance with CRED 9.3.9 E (1) may be relied on as tending to indicate compliance with CRED 9.3.8 R (the 8-day realisation-value rule).

  3. (2)

    Compliance with CRED 9.3.9 E (1) may be relied on as tending to indicate compliance with CRED 9.3.8 R (the 8-day realisation-value rule).

CRED 9.3.10 G

An asset maturing on a non-business day should be regarded as maturing on the succeeding business day.

CRED 9.3.11 G

For the purposes of clarity, funds serving liquidity purposes may be invested in the manner set out in CRED 7.2.1 R1 provided that the resulting assets satisfy the relevant requirements of this chapter.