Cred FAQ's
Confused about CRED? This section attempts to answer the most frequently asked questions. Just follow the links below.
Contents
- What are Child Trust Funds and can Credit Unions Accept Vouchers?
- What are the Controlled Functions?
- How do I apply for an Approved Persons authorisation?
- Approved Persons are required to be 'Fit and Proper'. What is Fit and Proper?
- What is Capital and how much should our Credit Union hold?
- What is Liquidity and how much should our Credit Union hold?
- What provision for Bad Debt should our Credit Union make?
What are Child Trust Funds?
A Child Trust Fund (CTF) is an investment for a child under a scheme established by the government on 6 April 2005. The Government contributes a sum to it (£250) for all children born after 1 September 2002 and the child’s relatives and others can also subscribe to it, up to a maximum of £1200 each year.
There are tight regulations governing how CTFs are operated, which include the following:
- The credit union has to apply to be a ‘provider’ and cannot accept vouchers and other contributions until it has obtained permission.
- The credit union has to demonstrate that it is able to make electronic submissions to Inland Revenue and Customs on a fortnightly and annual basis, detailing the CTFs that are held. There are fines for late submissions.
- CTFs are free of all forms of tax, so claims have to be made by the credit union for a refund of any tax charged.
- Providers are limited by law as to what charges can be made for this service. It is likely that many credit unions will not make a charge and this is a financial benefit to customers over commercial schemes where charges are likely to be levied.
- Credit unions are limited to providing non-stakeholder investments, unless they form a partnership with a provider who is able to provide stakeholder investments.
- Credit unions are likely to provide CTF cash savings accounts. A credit union must give the person opening the account information about dividends that are likely to be paid and also on other types of investments available, so that they can make an informed choice.
- Applications and other forms must conform to the regulations
- Funds cannot be withdrawn until the child’s 18th birthday.
For full information and examples of the forms to be used, go to www.hmrc.gov.uk/ctf/ctfguidance
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What are the Controlled Functions?
An individual who will perform a controlled function in a Credit Union must first obtain authorisation as an Approved Person. Controlled Functions cover:
1. The Director Function
2. The Apportionment and Oversight Function
3. The Money Laundering Reporting Officer
4. The Finance Function - The Treasurer and Treasury Team
5. The Risk Assessment Function
Approved Persons are considered to be able to exert considerable influence on the operations of a Credit Union and therefore are required to be authorised.
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How do I apply for an Approved Persons authorisation?
CRED Chapter 6.3.12 provides guidance on the forms required. These are:
Form A Application to perform a controlled function under the Approved Persons Regime
Form B Notice to withdraw an application to perform a controlled function under the Approved
Persons Regime
Form C Notice of ceasing to perform controlled functions
Form D Notice of changes in personal information or application details
ACE affiliated credit unions will have received a copy of these forms as master copies. Further copies can be obtained here.
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Approved Persons are required to be Fit & Proper. What is Fit and Proper?
The FSA will consider an individual Fit and Proper by ensuring:
1. Honesty, Integrity and Reputation. Factors considered include:
- Unspent criminal conviction for a previous crime involving financial services or fraud
- Subject of a previous investigation by a financial regulator
- Previous contravention of regulatory standards
- Involvement with another company that has been refused authorisation or has had its authorisation revoked
2. Previous disqualification as a directorand capability including:
- Trained or undergoing training to perform role
3. Previous experience relevant soundness:
- The fact that a person may be of limited financial means will not, in itself, affect a persons suitability to perform a controlled function.
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What is Capital and how much should our Credit Union have?
Version 1 Credit Unions must hold positive capital - assets ratio at all times while Version 2 Credit Unions must hold a capital - assets ratio of 8% at all times.
Capital is defined as:
1. Audited Reserves
2. Interim net profits
3. Any ‘Subordinated loans’ the Credit Union has negotiated.
The requirement to build a General Reserve of 10% still exists and Credit Unions must transfer a minimum of 20% of any surplus each year to General Reserve until they reach the 10% figure.
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What is Liquidity and how much should our Credit Union hold?
Liquidity is the availability of instant funds (those monies available within eight days notice) to meet unexpected share withdrawal request without affecting the operation of the Credit Union. Credit Unions are required to hold liquid assets of 10% of their total relevant liabilities at all times. This figure is allowed to drop to 5% but must not cover a period of more than two consecutive quarter ends.
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What provision should our Credit Union make for bad debt?
Credit Unions must make a Specific Provision of:
- 35% of net liability of loans between 3 and 12 months in arrears
- 100% of net liability of loans 12 months or more in arrearsUnions should make a General Provision of 2% of all other loan assets not covered by the specific provision.
- (Net liability of a loan = 'total loan + outstanding interest - shares held)
Revised: September 02, 2005.
