CRED 7.3 Borrowing and Financial risk management1
Borrowing2
2A credit union must not borrow from a natural person, except by subordinated loan qualifying as capital under CRED 8.2.1 R(4).
2Although section 10 of the Credit Unions Act 1979 now permits a credit union to borrow money without restriction, CRED 7.3.1A R imposes a limitation. A credit union may borrow from a body corporate, even though it may not admit a body corporate to membership or issue it with shares. Such loans can either be subordinated loans (providing regulatory capital within CRED 8.2.1 R (1)(c)) or senior loans (providing ordinary funding, but not constituting regulatory capital).3 Further explanation is given at CRED 7A.1A.1 G and 3CRED 7A.3.2 G.
The borrowing of a version 1 credit union must not exceed, except on a short-term basis, an amount equal to 20% of the total shareholding in the credit union.
- (1)
The borrowing of a version 1 credit union should not exceed an amount equal to 20% of the total shareholding in the credit union at the end of more than two consecutive quarters.
- (2)
Contravention of CRED 7.3.4 E (1) may be relied on as tending to indicate contravention of CRED 7.3.3 R.
The borrowing of a version 2 credit union must not at any time exceed an amount equal to 50 per cent of the total shareholding in the credit union.1
Subordinated debt obtained by a credit union and forming part of its capital (see CRED 8.2.1 R) does not count towards the borrowing limits under CRED 7.3.3 R and CRED 7.3.5 R.1
Financial risk management policy statement
A version 2 credit union must establish, maintain and implement an up-to-date financial risk management policy statement approved by the committee of management.
This policy should address both interest rate and funding risk. It should cover aggregate limits on holdings of investments and borrowings from sources other than members. It should deal with avoidance of funding concentrations (both source and time-band concentrations) and should detail the organisational arrangements, systems and controls in respect of these matters.
A credit union's committee of management should review and approve its financial risk management policy at least once a year, and more frequently if necessary, especially in light of significant changes in business.
A version 2 credit union must send to the FSA a copy of its financial risk management policy statement as soon as is reasonably practicable after approval by the committee of management.