This chapter contains guidance on the investigation and enforcement powers available to the FSA, and its approach to the use of those powers, in respect of:

1. (1)

   [Deleted]1

2. (2)

   credit unions, with respect to their activities of accepting deposits; and

3. (3)

   approved persons of credit unions, as set out in CRED 6.

The FSA's effective and proportionate use of its investigation and enforcement powers plays an important role in the pursuit of its regulatory objectives.

The FSA's investigation and enforcement powers in the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968 and the Credit Unions Act 1979, although its main powers derive from the Act and the Unfair Terms Regulations.21

For ease of reference:

1. (1)

   Annex 1 to this chapter (CRED 15 Annex 1 G) contains a table of the FSA's investigation and enforcement powers under the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968 and the Credit Unions Act 1979; and1

2. (2)

   Annex 2 to this chapter (CRED 15 Annex 1 G) contains a table of the main relevant investigation and enforcement powers under the Act and the Unfair Terms Regulations,2 showing where they are considered in the Enforcement manual (ENF).1

Some of the FSA's powers listed in CRED 15 Annex 1 G are similar to the powers listed in CRED 15 Annex 2 G. For example, the FSA has information gathering and investigation powers under both the Industrial and Provident Societies Act 1965, as extended by the Credit Unions Act 1979, and the Act. These different powers enable the FSA to investigate and enforce the different requirements imposed on credit unions by legislation.1

In appropriate circumstances, the FSA may need to consider which power to use, and whether to use powers, from one or more of the Acts. Which power or powers are appropriate will vary according to the circumstances of the case. Where the FSA is exercising its investigation and enforcement powers, it will normally explain to the credit union, individual or other persons concerned under which power, or powers, it is acting.1

However, it is the responsibility of credit unions and individuals, or other persons connected to them to ensure that their actions comply with the requirements of the legislation and the FSA'srules, at all times. Credit unions and those involved with them can contact their usual supervisory contact at the FSA about the use of the FSA's investigation and enforcement powers.1

There are a number of principles underlying the FSA's approach to the exercise of its investigation and enforcement powers in relation to credit unions1:

1. (1)

   the effectiveness of the regulatory regime depends to a significant extent on the maintenance of an open and cooperative relationship between the FSA and the management of credit unions1;

2. (2)

   the FSA will seek to exercise its investigation and enforcement powers in a manner that is transparent, proportionate and consistent with its publicly stated policies; and

3. (3)

   the FSA will seek to ensure fair treatment when exercising its investigation and enforcement powers. For example, the FSA's decision making process for regulatory enforcement cases generally gives an opportunity for both written and oral representations to be made, and also provides for a facility for mediation in certain disciplinary cases.

The investigation and enforcement powers available to the FSA form part of the regulatory toolkit it will use to meet its regulatory objectives of protecting consumers, promoting public awareness, maintaining confidence in the financial system and reducing financial crime. Where a credit union, or an individual, has failed to comply with the requirements of the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968, the Credit Unions Act 1979, the Act, the FSA'srules, or other relevant legislation (for example, the Criminal Justice Act 1993 and the Money Laundering Regulations), it may be appropriate to deal with this without the need for formal disciplinary or other enforcement action.1

The proactive supervision and monitoring of credit unions, and an open and cooperative relationship between credit unions and their supervisors, will, in some cases where a contravention has taken place, lead the FSA to decide against taking formal disciplinary action. However, in such cases, the FSA will expect the credit union, or the individual, to act promptly to take the necessary remedial action, agreed with its supervisors, to deal with the FSA's concerns. If the credit union, or the individual, does not do this, the FSA may take investigation or enforcement action in respect of the original contravention.

Where the FSA has concerns about a credit union, or an individual, it will normally discuss its concerns with them before considering the use of its investigation and enforcement powers. However, the FSA may take action without discussing its concerns with a credit union in urgent cases or in cases where the interests of consumers might otherwise be put at risk.1

[Deleted]1

The FSA's enforcement powers in the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968, the Credit Unions Act 1979 and the Act can be grouped into three broad categories, based on the type of procedure that applies to their use. The three broad categories are:1

1. (1)

   regulatory enforcement powers, which the FSA must exercise by statutory1 notice procedures;

2. (2)

   civil enforcement powers, which the FSA must exercise by making application to the civil courts; and

3. (3)

   criminal prosecution powers, which the FSA must exercise by bringing proceedings in the criminal courts.

When the FSA exercises its regulatory enforcement powers, the statutory1 notice procedure it must follow varies depending on the type of action to be taken and the provisions of the relevant legislation.

1. (1)

   If the FSA is using its regulatory enforcement powers under the Act, it must give the reasons and various notices required by the Act and, in all cases, allow the person receiving the notice an opportunity to make representations. The FSA's decision making procedures for notices to be given by the Act are set out in DEC. CRED 16 provides an overview of DEC.

2. (2)

   If the FSA is using its regulatory enforcement powers under the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968 and the Credit Unions Act 1979, it will have regard to the Principles set out in CRED 3 and will, so far as appropriate, provide a process that is consistent with that in DEC.1

When the FSA uses its civil enforcement powers and criminal prosecution powers under the relevant legislation, it must follow the procedures of the civil and criminal courts.

1. (1)

   If the FSA is considering using its regulatory enforcement, civil enforcement or criminal prosecution powers under the Act, it will apply the policies on the use of those powers set out in ENF.

2. (2)

   If the FSA is considering using its regulatory enforcement, civil enforcement or criminal prosecution powers under the Industrial and Provident Societies Act 1965, the Friendly and Industrial and Provident Societies Act 1968 and the Credit Unions Act 1979, it will, to the extent appropriate, apply the policies on the use of similar powers under the Act (as set out in ENF).1

1This section is a modified summary of ENF 13.5 (Financial penalties for late submission of reports) which sets out the FSA's policy and procedures in relation to financial penalties for late submission of reports. (See ENF 13.5 for full details).

1The FSA attaches considerable importance to the timely submission by credit unions of the reports referred to in ENF 13.5. This is because the information that they contain is essential to the FSA's assessment of whether a credit union is complying with the requirements and standards of the regulatory system and to the FSA's understanding of that credit union's business.

1. (1)

   1In general, the FSA's approach to disciplinary action arising from the late submission of a report will depend upon the length of time after the due date that the report in question is submitted. Where the period of delay is no more than 28 business days, the FSA considers that in the majority of cases it will be appropriate to limit the sanction imposed on the credit union concerned to a financial penalty fixed by reference to the indicative scale of penalties at ENF 13 Annex 1 G (reproduced at CRED 15 Annex 3 G).

2. (2)

   There may, however, be exceptional circumstances in which the FSA considers that it is appropriate not to seek a penalty, or to impose a lower penalty than the one indicated by the scale. An administrative difficulty such as pressure of work does not, in itself, constitute an exceptional circumstance for this purpose.

3. (3)

   Equally, the FSA may impose a higher penalty than the one indicated by the scale at ENF 13 Annex 1 G (CRED 15 Annex 3 G) having regard to the seriousness of the contravention and the extent to which the contravention was deliberate or reckless. This may include, for example, a case where a credit union repeatedly fails to submit its reports on time or where there is information that suggests that such a delay was deliberate.

4. (4)

   The FSA will also have regard to the submission frequency of the late report when assessing the seriousness of the contravention. For example, a short delay in submitting a quarterly report may have more serious implications for the supervision of the credit union in question than a similar delay in submitting an annual report. Such a delay may therefore be subject to a higher penalty than the one suggested by the indicative scale.

1Reference to an indicative scale of penalties for breaches of this nature represents an exception to the FSA's general policy described in ENF 13.3.1 G (Factors relevant to determining the appropriate level of financial penalty). The FSA considers that it is appropriate to treat this type of breach differently from other regulatory breaches on the basis that the nature of the facts establishing the breach is likely to be similar in each case and that the scale will ensure consistency in the treatment of the credit unions in question.

1. (1)

   1Where a report is submitted more than 28 business days after the due date, and there are no exceptional circumstances justifying the failure to submit on time, the financial penalty imposed is likely to exceed the amount indicated by the scale at ENF 13 Annex 1 G (CRED 15 Annex 3 G) for 21 to 28 business days delay. The FSA will determine the precise level of the financial penalty to be imposed in accordance with the approach discussed in ENF 13.3.3 G (Factors relevant to determining the appropriate level of financial penalty).

2. (2)

   In addition, in appropriate cases, the FSA may bring disciplinary action against the approved person or persons within the credit union's management who are ultimately responsible for ensuring that the credit union's reports are completed and returned to the FSA (see ENF 11.5 (Action against approved persons)).

1In applying the guidance in ENF 13.5 (Financial penalties for late submission of reports), the FSA may treat a report which is materially incomplete or inaccurate as not received until it has been submitted in a form which is materially complete and accurate. For the purposes of the guidance, the FSA may also treat a report as not received where the method by which it is submitted to the FSA does not comply with the prescribed method of submission.

1In most late reporting cases, it will not be necessary for the FSA to appoint an investigator under its powers discussed in ENF 2 (Information gathering and investigation powers) since the fact of the breach will be clear. It follows that the FSA will not usually send the credit union concerned a preliminary findings letter (see ENF 2.5.12 G (The FSA's policy on exercising its powers: firms, approved persons and others)) for late-reporting disciplinary action.

1A failure by a credit union to submit a report by the due date may indicate wider problems within the credit union, for which more serious disciplinary sanctions or other enforcement action (see ENF 11.2.3 G (Introduction)) or both may be appropriate.

1The FSA will use the decision making procedure set out in DEC 4.5.2 G to DEC 4.5.6 G (Delegation of RDC decisions and modified RDC procedures) to decide whether to impose a financial penalty for the late submission of a report. It will use this procedure whether the period of delay is more than or less than 28 business days including if no submission has been made at all.

1. (1)

   1Once a final notice has been issued relating to a financial penalty and any other relevant sanction for a late report, the FSA will consider whether it is unfair to the credit union or prejudicial to the interests of consumers to publish information relating to the decision. The FSA anticipates that in most cases where reports have been submitted late, no such unfairness or prejudice will exist. If so, it will enter details of the decision in the FSA Register.

2. (2)

   The FSA may also publicise the sanctions on a wider basis where the contravention is considered to be particularly serious. Examples of situations that may result in wider publicity include where the period of delay exceeds 28 business days or where the credit union in question has previously failed to submit its reports on time to the FSA or to any previous regulator.