Frequently asked questions on credit unions
If you have a question about the regulation of your credit union, you may find the answer here.
Annual and Quarterly Returns
Provisioning requirements and net liabilities
Loans and large exposures
Shares
Extension of 'common bond' (appropriate membership qualification)
Names
Status disclosure
Control functions/Approved Persons/Directors
Other questions
Annual and Quarterly returns
When should the Annual Return (Form CY) be submitted to the FSA?
The Annual Return, together with the annual accounts, must be submitted within seven months of the credit union's financial year end. For example, if your year end is 30 September, the Annual Return and accounts must be submitted to reach the FSA no later than 30 April the following year.
When should the quarterly return (Form CQ) be submitted to the FSA?
The Quarterly Return must be submitted within one month of the quarter end. For example, a quarterly return made up to 31 March must be submitted to reach the FSA by 30 April.
What happens to credit unions that submit their returns late?
All regulated firms can be charged an administration fee to cover the costs of the FSA having to chase outstanding returns (although at present we do not normally impose that charge on the smaller credit unions in respect of quarterly returns). Other action taken depends on circumstances and the reasons for the delay. In some cases we are prepared to wait but in others, where there is a record of late returns and a lack of information on the reasons, we may write individually to all Directors of the credit union (as they have the responsibility for ensuring that we do receive the returns) and, ultimately, we may take enforcement action and stop the credit union from operating. A credit union should always contact the FSA if it knows that a return is going to be late.
Our financial returns are produced automatically on computer – do we still need to check the figures?
Yes, the credit union is responsible for the figures it submits (see CRED 14.10.4B(G)) and any errors made in inputting data to the computer will lead to wrong numbers coming out in the returns. The extent and depth of the checking required will depend on each credit union's individual circumstances but, at a minimum, the return should be given a "sense check" – do the figures look right and are they comparable to the previous ones? Please note that those signing off a financial return must be capable of understanding the contents of the return and what they are signing.
Provisioning requirements and net liabilities
I am having trouble understanding the provisioning requirements for bad and doubtful debts.
CRED 10.5 requires that "adequate" provisioning be made and stipulates minimum requirements in respect of loans at least three months in arrears; these specific provisions should be calculated as follows:
- at least 35% of the total of the net liabilities of borrowers with loans between 3 and 12 months in arrears, plus
- at least 100% of the total of the net liabilities of borrowers with loans more than 12 months in arrears.
In addition, a credit union needs to make a general provision against the total of net liabilities of borrowers who are not at least three months in arrears. This general provisioning needs to be at least 2% of these net liabilities.
An example of how to make the calculations is given in our quarterly return guidance note [PDF].
But how do I calculate net liabilities?
You first need to calculate the net liability of each borrowing member: the outstanding loan amount plus the interest due minus the value of the member's shares (whether "attached" to the loan or not). Where the share value is greater than the outstanding loan plus interest, there is no individual net liability.
To calculate the total net liabilities, you should add all the individual net liabilities together. (Borrowers without a net liability are excluded from this calculation - otherwise the net savings amounts of some borrowers would be being used to offset the net liabilities of others, which is not acceptable.)
An example of how to make the calculation is given in our quarterly return guidance note [PDF].
Loans and large exposures
What are the maximum lending periods for loans made by credit unions?
For version 1 credit unions (the majority of credit unions) - five years for unsecured loans and 10 years for secured loans.
For version 2 credit unions - 10 years for unsecured loans and 25 years for secured loans.
How much can credit unions lend to individual members?
- For a version 1 credit union with a capital to assets ratio of under 5%: £7,500 in excess of that member's shares;
- For a version 1 credit union with a capital to assets ratio of at least 5%: £15,000 in excess of that member's shares;
- For a version 2 credit union: £15,000 in excess of that member's shares or, if 1.5% of the total value of shareholdings in the credit union is greater than £15,000, that amount in excess of the member's shares.
It is important to remember that these lending limits are subject to the rules relating to large exposures - see question 11. A potential loan may be permissible under these limits but prohibited because the loan would exceed the limit on individual large exposures or cause the aggregate of individually acceptable large exposures to exceed the overall limit.
What is a large exposure?
A large exposure is defined as an individual's net liability (see point 8 below) to the credit union which is at least £7,500 and at least 10% of total capital. An individual large exposure must not exceed 25% of total capital (see CRED 10.4.2R) and the aggregate of all large exposures must not exceed 500% of total capital.
Shares
What is the maximum shareholding a member can have?
The greater of £10,000 or 1.5% of the total shareholdings in the credit union.
Extension of 'common bond' (appropriate membership qualification)
How do I extend or change my credit union's "common bond" (the Appropriate Membership Qualification)?
Obviously, applications vary in their complexity - we aim to fast-track straightforward cases but the more complicated ones may require correspondence or meetings. However, you should begin by following these steps. Occasionally, we will need to vary the process or ask for further information.
(a) Read CRED 13 Annex 1A, which sets out our general requirements in respect of common bonds.
(b) Write to the Credit Union Team at the FSA with details of:
- The current "common bond" and eligible population size;
- The proposed wording of the new "common bond" (which must be in line with one of the qualifications set out in CRED 13 Annex 1B or 1C) including a map where relevant;
- The eligible population size of the new "common bond" area;
- Additional information as in the table below.
| Population pool | Additional information needed |
|---|---|
| Up to 100,000 | Statutory declaration (Form CU1(1)) Simple explanation of common bond |
| 100,000 to 1 million | Convincing case that common bond exists |
| Over 1 million | FSA assumes that a common bond does not exist: therefore, a very strong case must be made to prove otherwise. |
(c) If the eligible population pool is below 100,000 and the FSA approves your new "common bond" (Appropriate Membership Qualification) in principle, we will invite you to formally register the amendment to the credit union's rules, which will make the change legal (see below).
(d) If the eligible population pool is between 100,000 and 1 million, you should include with your initial application detailed evidence of the existence of a common bond. The amount and type of evidence you provide is not prescribed by the FSA but we would normally expect this to comprise a well thought out and researched document running into several pages.
(e) If the eligible population pool is over 1 million, then it is unlikely that the FSA will agree that a common bond exists. If you wish to put forward an application for a qualification covering an eligible membership pool of this size, then your case must be exceptionally strong.
(f) Once a new "common bond" has been agreed in principle by the FSA, you should formally apply to register an amendment to your registered rules to bring the change into effect. You should do this by downloading the application forms (Amendment of rules (complete or partial), Amendment of rules (complete) - Appendix 2, Statutory Declaration in support of a common bond) and after completing and signing them, sending them to us via your Trade Body. If you are making a partial amendment to your rules, you should attach two signed copies of the particular amendment and a a copy of your current rule book; if you are making a complete amendment of rules, you should attach two copies of your new rule book.
(g) Any changes to the "common bond" must be agreed by the members in accordance with the credit union's registered rules. Members' approval should not normally be sought until the proposals have been cleared by the FSA.
(h) No change to the "common bond" is valid until the consequent amendment to the credit union's registered rules has been made.
Trading names and details
How do I notify the FSA of a change to the credit union's name?
Complete and return to the FSA a change of name.
Is there any guidance available on the choosing of a name for our credit union?
You may find it helpful to read the guidance note on names.
Section 3 of the Credit Unions Act 1979 requires that every society registered as a credit union shall have the words "credit union" in its name (or if the credit union's registered office is in Wales, the words "Undeb Credyd"). It is not permissible to have both alternatives in the same name.
May a credit union have a trading name?
Yes. However, if it does use a trading name, the full registered name of the credit union should still be stated on all letterheads, emails, stationery etc and in a prominent position at the registered office.
It is possible for a credit union's trading name to be added to the FSA Register for public information purposes. To do this, complete and return the form.
Status disclosure
What are the requirements on status disclosure on credit union documents?
You need to be aware of the requirements of both the FSA Handbook and the Industrial and Provident Societies Act 1965 (IPSA):
i) Since 1 March 2004 GEN 4.3.1R has required credit unions to take reasonable care to state that it is "authorised and regulated by the Financial Services Authority" in all letters and e-mails sent to members (see also CRED 11.3.2G). Most credit unions comply with this requirement by having this wording printed on their letterheads and other significant stationery.
NB The wording "Financial Services Authority" must be used and not be abbreviated to "FSA".
ii) IPSA requires that a credit union must use its registered name in all business letters. This does not mean that a trading name cannot also be used but, if it is, the "real" name must also be present.
Control functions/Approved Persons/Directors
Can you tell me which controlled functions are applicable to credit unions and their approved persons?
In broad terms, only those officers undertaking the significant influence roles need to be approved, in other words not all volunteers need to be approved by the FSA. The following controlled functions are applicable to credit unions:
CF1 Director function. This would apply to all elected Directors and any people elected to the credit committee who are not Directors. It would only cover members of the Supervisory Committee if your credit union's registered rules allow members of that committee also to be members of the committee of management (or Board); most credit union rules do not allow this.
CF2 Non-executive director function. This function covers members of a credit union's Supervisory Committee (unless they are at one of the minority of credit unions who elect Supervisors from the Board members).
CF3 Chief Executive function. This function would cover anyone acting in the capacity of chief executive, whether or not using that title. It would include the most senior paid manager, and/or the most senior person entrusted with the day to day running of the credit union.
CF8 Apportionment and Oversight function. This is a required function - every credit union must have at least one approved person appointed to this post. This function must be allocated to the credit union's chief executive officer, if there is one, although the function may be allocated to one or more members of the credit union's committee of management (in addition to the chief executive), as long as the allocation is appropriate.
CF11 Money Laundering Reporting function. This is also a required function - every credit union must have an approved person appointed to this post. The individual should have a sufficient level of seniority within the credit union to carry out this controlled function effectively.
CF28 Systems and controls function. This would be a non-elected individual delegated the responsibility of reporting to the committee of management on the credit union's financial affairs, on setting and controlling its risk exposure and on adherence to internal systems and controls, procedures and policies. It is not a required function.
We have doubts about the fitness and propriety of one of our Directors. Should he/she continue to act as a director? What do we need to do?
The most important factors when assessing a person's Fitness and Propriety (for the Approved Persons regime) are: his/her honesty, integrity and reputation; competence and capability; and financial soundness. If the credit union believes that a Director may no longer satisfy these criteria, it should consider the risks of allowing the individual to continue to hold office. If the risks are deemed unacceptable, it should ask him/her to resign. (It would then need to submit Form C: Notice of ceasing to perform controlled functions). If the Board does decide to take action, it should ensure that it does so in accordance with the rules of the credit union, particularly if it decides to seek to remove the Director after requesting, but not receiving, his/her resignation.
Who has overall responsibility in our credit union.
Ultimately, the Board of Directors, but more generally, responsibility is shared with the Supervisory Committee and staff (if any). The FSA has completed a project on corporate governance in credit unions.
How do I access the FSA register for information on my (or another) credit union?
The FSA register is also useful for confirming a credit union's correct name, address, firm reference number and permissions held, and for viewing the list of Approved Persons to check that it is up to date.
To use the Register, enter either (i) the credit union's 6-digit Firm Reference Number or (ii) its name and/or (iii) the postcode of its registered office and click Search.
If you are looking for credit unions in a particular area, type "credit union" in the Firm Name and the first one or two letters of the post code in the relevant box.
How do I check my credit union's list of approved persons on the FSA Register?
Enter either (i) the FSA 6-digit firm reference number or (ii) the credit union name and/or (iii) the postcode and click Submit. Next, click on Individuals at the top of the screen. Click on each Individual's name for details of their Controlled Function(s) (the role(s) they are registered to undertake). A credit union should check these details regularly to ensure they are up to date.
How often should I check my credit union's list of Approved Persons on the FSA Register?
It is essential that the Register is up to date at all times. Once approved, persons are considered by the FSA to retain the responsibilities of the relevant Controlled Functions until they are de-registered or their registration is amended, even if they have resigned those roles at the credit union. You should check the FSA Register regularly and you should certainly check every time there is a change in the management of the credit union, to see who is registered for what so that changes needed can be identified. You should also check again after submitting notifications of changes, to ensure that they are properly registered.
How do I notify the FSA of changes in our approved persons?
CRED 6 and SUP 10 cover the approved person regime, including details of the relevant forms to be completed for new applications (Long Form A and Short Form A); withdrawal of applications (Form B); cessation of role (Form C), notification of changes in personal information (Form D) and changes in the controlled function already held (Form E). Completed forms should be sent to the FSA.
We have available a complete list of forms.
Other questions
How do I notify the FSA of a change in our registered office?
Complete and return to the FSA a change of registered office form.
Check your credit union's details on the FSA register after two weeks to ensure that your change of address has been properly recorded.
We have available a complete list of forms.
May a credit union operate a lottery?
No, this is not considered to be within the objects of a credit union. However it is acceptable for a credit union to receive donations from an outside organisation that runs a lottery for the benefit of the credit union.