CRED 7
CRED 7.2 Investment
R Rules
Types of investment
CRED 7.2.1R 01/12/2004
Subject to the general limitations on its powers contained in the Credit Unions Act 1979 and to the limitations contained in CRED 7.2.2 RCRED 7.2.3 R below, a credit union may invest its surplus funds and funds serving liquidity purposes only in the following types of investment:
deposits or loans to a UK domestic firm with Part IV permission to accept deposits;
deposits or loans to an institution which is authorised in any other EEA State to accept deposits;
sterling-denominated securities issued by the government of any EEA State;
fixed-interest sterling-denominated securities guaranteed by the government of any EEA State, provided that any guarantee is unconditional in respect of the payment of both principal and interest on those securities.
Maturity of investments1
Any securities invested in, or loans made, in accordance with CRED 7.2.1 R by a version 1 credit union must have a maturity date of not more than 12 months from the date on which the investment is made.
Any securities invested in, or loans made, in accordance with CRED 7.2.1 R by a version 2 credit union must have a maturity date of not more than five years from the date on which the investment is made.
Cash in custody of officers
Surplus funds not invested by a credit union in accordance with CRED 7.2.1 RCRED 7.2.3 R must be held as cash in the custody of officers of the credit union.
Investment conditions no longer satisfied
Where under CRED 7.2.1 RCRED 7.2.3 R above, a firm or another institution ceases to satisfy the conditions necessary for a credit union to invest with it or lend to it, and any funds of a credit union are with that firm or other institution, the credit union must take all practicable steps to call in and realise that loan within three months of that cessation, or, if that is not possible, as soon after the end of that period as possible.
Transactions between credit unions
CRED 7.2.6G 01/12/2004
1A credit union may accept a loan from another credit union (section 10(1) of the Credit Unions Act 1979). However, although a credit union is a UK domestic firm with Part IV permission to accept deposits (CRED 7.2.1 R (1)), it cannot issue shares to another credit union (section 5(1) and (2) of the Credit Unions Act 1979) or otherwise accept deposits from another credit union (Section 8(1) of the Credit Unions Act 1979). UK banks and building societies may accept deposits from a credit union.
CRED 7.2.2 R - CRED 7.2.3 R apply to loans between credit unions, except for subordinated loans qualifying as capital under CRED 8.2.1 R (4)(a). (See CRED 7.2.1 R and CRED 8.2.5 R (2)).
CRED 8.2.1 R - CRED 8.2.6 G apply to subordinated loans between credit unions qualifying as capital under CRED 8.2.1 R (4)(a).
CRED 10 (Lending) (which covers loans to members) does not apply to loans between credit unions (see CRED 10.1.1 R). However, in relation to such loans, credit unions should have regard to the principles outlined in CRED 10.4.6 G and CRED 10.5 (Provisioning).
CRED 9.3.7 R(2) applies to loans between credit unions in relation to liquidity.2
2Loans between credit unions should only be arranged after careful consideration by both parties. For example:
the borrower should consider the financial implications of relying on such borrowing in order to lend to members, or to finance share withdrawals; and
the lender should assess the risk of late and non-repayment arising from the borrower's own liquidity and credit risks, and keep the aggregate of its loans to other credit unions to a very modest level.
2Section 12 of the Credit Unions Act 19793
2Section 12 of the Credit Unions Act 1979 permits a credit union to hold, purchase or take on lease any land for the purpose of conducting its business, but for no other purpose, except where it holds an interest in land as security for loans to members.3
3A credit union may buy or hold property as premises from which to conduct its business, but not as an investment.
A credit union may acquire premises that reasonably anticipate its future accommodation needs, or a unit (for example, the whole building, or a floor of a building) of which it requires most, but not all, and lease out the surplus area. But it may not acquire as an investment property greatly in excess of its operating requirements, with the real purpose of letting out the excess.
A credit union may purchase premises out of surplus funds, or by borrowing, or by a combination of the two, whichever is most prudent.
A credit union's premises will not count as liquid for the purposes of CRED 9.3.7 R.