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.

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.

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.

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) 2
   1. (a)

      The most reliable interpretation of section 7 is that the committee may exercise this discretion on a case-by-case basis, but may not treat all such shares as freely withdrawable. This does not mean that every individual case has to be put before the committee. A case can be decided by an official of the credit union, applying a comprehensive policy laid down by the committee. This policy should be fully documented and set out all the factors that might lead to permitting the withdrawal. (Permitting the withdrawal should be the exception, not the norm.) If a decision is not clearly dictated by the committee's policy, then it should be referred to the committee itself.2

   2. (b)

      The policy may extend to designating as freely withdrawable for the time being the shares in a class of share account, intended for use as a current account, or otherwise in connection with ancillary services (as defined in section 9 of the Credit Unions Act 1979). Where such shares are subject to the committee's discretion in section 7 (through the existence of a related loan) the credit union should not purport to give a contractual commitment to the free withdrawability of the shares, because that section means that the committee is capable of terminating the designation at any time.2

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

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.

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.

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.

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.

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.

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.

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

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.