1In relation to membership of credit unions, the Credit Unions Act 1979 provides that:
a common bond has to exist among the members (section 1(2)(b) - see CRED 13 Annex 1A, CRED 13 Annex 1B, CRED 13 Annex 1C and CRED 13 Annex 2 G);
only individuals may be members (section 5(1)); and
a member has to hold at least one share (section 5(2)).
1Membership of a credit union is open only to individuals acting in a private capacity and in their own right. It is not open to:
a body corporate; or
an individual acting as a representative of a body corporate or unincorporated association.
1 Section 9(1) of the Credit Unions Act 1979 provides that a credit union may take deposits from a person who is under the age at which he may become a member.
1An explanation of section 9(1) of the Credit Unions Act 1979 is given at paragraph 3 of CRED 13 Annex 2 G.
The deposits referred to in CRED 7A.1A.2 G (1) are not shares and the persons who make those deposits are not members.
A credit union must not permit a member to have or claim any interest in the shares of the credit union exceeding the greater of £10,000 or1 1.5 per cent of the total shareholdings in the credit union.
1Where CRED 7A.2.1 R or CRED 7A.2.6 R would be breached in relation to a member of a credit union because of a reduction in the total shareholdings in the credit union, those rules must, in relation to him, have effect, as respects any shares which he had, or interest which he claimed, immediately before the reduction, as if there were added at the end "at the time, or latest time, when he acquired shares, or an interest in the shares of the credit union."
CRED 7A.2.2 R makes it unnecessary for a member to reduce his shareholding merely because of a reduction in the total shareholdings of the credit union.
For the purposes of CRED 7A.2.1 R and CRED 7A.2.2 R, the total shareholdings in a credit union at any time must be taken to be the total shareholdings as shown in the most recent annual return to have been sent to the FSA under SUP 16.7.62 or SUP 16.12.5 R3 (see CRED 14.10.7 G).
Shares in a credit union must not be held in the joint names of more than two members.
For the purpose only of the limit in CRED 7A.2.1 R, the interest of a member in a joint account must be treated as 50 per cent of the shareholding in that account.
A version 1 credit union must not:
A version 2 credit union is permitted to:
A credit union must not accept deposits except:1
as shares from its members who are natural persons qualifying in accordance with CRED 13 Annex 2 G Table 1G 1; or1
from natural persons too young to be members under CRED 7A.3.1 R(2); or1
as loans from persons under CRED 7.3.1A R - CRED 7.3.2A R.1
A credit union must not accept deposits exceeding the greater of £10,000 or3 1.5 per cent of the total shareholdings in the credit union from a person who is under the age at which, under section 20 of the Industrial and Provident Societies Act 1965, he may become a member of the credit union unless the deposits are held in a CTF, in which case the credit union may accept a larger deposit.21
32 Credit unions that provide CTFs should ensure that under their rules depositors under the age of 18 whose deposits are held within a CTF continue to be treated as juvenile depositors until the age of 18. This will provide for the fact that CTF account holders may not withdraw any money from the CTF until they reach the age of 18 in contrast to the position in relation to other deposits which become shares and may be withdrawn earlier.
The effect of the general prohibition in section 19 of the Act is that no person may carry on the regulated activity of accepting deposits, unless authorised or exempt.1
CRED 7.3.1A R and CRED 7A.3.1 R are intended to ensure that the liberalisation of credit union borrowing (CRED 7.3.2A R) does not have the unintended effect of undermining the common bond concept (CRED 13 Annex 1 G) by allowing credit unions to operate deposit accounts for natural persons who do not qualify for membership.1
Section 20 of the Industrial and Provident Societies Act 1965 provides that a person above the age of 16 may be member of a credit union, unless its rules provide to the contrary (see CRED 13 Annex 2 G Table1G3).1
CRED 13 Annex 2 G Table 1G 3 gives guidance on the eligibility of natural persons too young to be members.1
A credit union is no longer required to:1
hold such juvenile deposits in a fund apart from the general funds of the credit union; and1
distribute all the interest earned on the fund (after deduction of expenses) to juvenile depositors.1
A credit union may make a commercial judgement on the appropriate amount of interest to pay juvenile depositors.1
These changes were made by amendment of section 9 of the Credit Unions Act 1979 by Order under section 428 of the Act. (The Financial Services and Markets Act 2000 (Consequential Amendments and Transitional Provisions) (Credit Unions) Order 2002 - SI 2002 No. 1501)1
A credit union must at all times maintain in force a policy of insurance complying with CRED 7A.4.2 R.
In order to comply with CRED 7A.4.1 R, a policy of insurance subject to the exception in CRED 7A.4.3 R:
must insure the credit union in respect of every description of loss suffered or liability incurred by reason of the fraud or other dishonesty of any of its officers or employees;
must so insure the credit union up to the limits set out in CRED 7A Annex 1 R in respect of any one claim, except that the liability of the insurer may be restricted to the amounts set out in CRED 7A Annex 1 R in respect of the total of the claims made in any one year; and
must not provide in relation to any claim for any amount greater than one per cent of the limits on any one claim set out in CRED 7A Annex 1 R to be met by the credit union.
From the losses and liabilities against which a policy complying with CRED 7A.4.2 R must insure there must be excepted all loss suffered or liability incurred by a credit union other than direct pecuniary loss discovered during the currency of the policy of insurance or within 18 months of the date on which either the policy of insurance lapses, or the duties of the officer or employee concerned are terminated, whichever occurs first.
1The "aggregate value" in CRED 7A Annex 1 R comprises the shares and deposits (including those held in a CTF) referred to in CRED 7A.3.1 R (1)(a) and (b).
The tables in CRED 7A Annex 1 R set out the minimum levels of insurance cover required by a credit union. It is prudent for a credit union to consider whether additional cover:
is needed for its own particular circumstances; and
should be obtained to cater for actual or projected growth in the "aggregate value" (see paragraph 1 of CRED 7A Annex 1 R) between "relevant dates" (see paragraph 3 of CRED 7A Annex 1 R).
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Column (1) Aggregate value of share subscriptions and other deposits received and not repaid (the "aggregate value") |
Column (2) Cover required in respect of any one claim |
Column (3) Cover required in respect of total claims made in any one year |
|
|
Row (A) |
Less than £10,000 |
The higher of £500 or 50 per cent of the aggregate value |
The higher of £1,000 or 100 per cent of the aggregate value |
|
Row (B) |
£10,000 to £100,000 |
The higher of £5,000 or 20 per cent of the aggregate value |
100 per cent of the aggregate value |
|
Row (C) |
More than £100,000 |
The higher of £20,000 or 15 per cent of the aggregate value |
The higher of £100,000 or 75 per cent of the aggregate value |
|
Row (D) |
More than £1,000,000 |
£150,000 plus 5 per cent of the aggregate value over £1,000,000, subject to a maximum of £2,000,000 |
£750,000 plus 5 per cent of the aggregate value over £1,000,000, subject to a maximum of £4,000,000 |
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In relation to a credit union which, at the relevant date, has accepted and not repaid share subscriptions and other deposits of the aggregate value stipulated in column (1) of the table in this Annex, the limit in respect of any one claim is the amount appearing in the corresponding part of column (2); and the amount in respect of the total of claims made in any one year is the amount appearing in the corresponding part of column (3). |
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For the purposes of this Annex, "the relevant date" is either the date of inception or renewal of the policy of insurance, or such other date as the credit union determines, provided that the relevant date in each year subsequent to the first must be not more than one year after the relevant date in the preceding year. |
