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The PRA regulates approximately 500 credit unions.
The Senior Managers Regime (SMR) came into force on Monday 7 March. Key points for credit unions from the new regime are highlighted below:
Senior Management Function (SMF) 8 is the the only mandatory PRA-designated function for credit unions (SMF17 Money Laundering Reporting Officer is a mandatory FCA-designated function). While credit unions have the option to do so, there is no PRA requirement or expectation to make use of the other SMFs (eg Chief Finance Function (SMF2) or Chairman Function (SMF9)). More than one individual can perform the SMF8.
There are 9 mandatory Prescribed Responsibilities that apply to credit unions. A credit union must ensure it has at least one person (who must be an SMF) designated as responsible for each one of these responsibilities. There are additional Prescribed Responsibilities which apply to banks and building societies of a certain size. Larger credit unions may wish to allocate these among their SMFs but are neither required nor expected to do so.
Applications for pre-approval as an SMF8 (or, if applicable another SMF in a credit union) should be accompanied by a Statement of Responsibilities setting out the key responsibilities which the candidate will have in their role. Credit unions can use the Connect system to submit their applications. The system will allow them to access a template Statement of Responsibilities. The number of applications under the SMR is expected to reduce for credit unions relative to the Approved Persons Regime, and the PRA will only contact credit unions where necessary. Credit unions are also required to produce, submit and maintain a Responsibilities Map setting out their governance arrangements. Responsibilities Maps should reflect the size and complexity of the underlying institutions; for small credit unions with a straightforward business model a relatively simple plan will suffice.
Where an individual is put forward for approval, the PRA will require credit unions to attach the individual's CV to the application.
Update on 5 February - On 1 February 2016, the PRA held an industry briefing on Policy Statement 4/16 ‘Reform of the legacy Credit Unions sourcebook’. A copy of the slides from the event is available below. A link to the information published by the Financial Conduct Authority (FCA) in respect of this statement is also available below.
The reform of the legacy Credit Unions sourcebook – presentation to credit union trade associations.
FCA PS16/1: Reform of the legacy Credit Union sourcebook
Update on 1 February - The PRA and FCA published PS4/16’ Reform of the legacy Credit Unions sourcebook’. The PS includes feedback to CP22/15 published jointly in June 2015, PRA final rules and a supervisory statement intended to be read in conjunction with the rule instrument, and FCA final rules and guidance. The PS also contains the FCA changes to the Credit Unions Sourcebook as a result of CP14/31 relevant to the accountability regime. The changes following PRA and FCA CP22/15 and CP15/21 will come into force on 3 February 2016 with the exception of PRA rules on whistleblowing (Credit Unions 12), which come into force 7 September 2016 - see Credit Unions 18 for transitional rules for the period 7 March - 6 September 2016. The changes following FCA CP14/31 will enter into force on 7 March 2016 (in line with the other provisions related to the accountability regime).
Update on 11 December 2015 - The CREDS rules in the PRA Rulebook require a credit union to maintain an internal audit function. CREDS guidance states the independent audit function should be independent of all the functions it inspects. The PRA has not set out in its guidance how this function is performed. In practice many credit unions fulfil this requirement via the activities of their supervisory committee. In the past few years, the PRA has started to see some of the larger credit unions supplementing the activities of their supervisory committees by purchasing internal audit services from a third party. The PRA understands that in some cases these services are provided by the same firm that provides the credit union’s external audit.
Where appropriate, the use of third parties for internal audit services can be very positive and has the capacity to provide supervisory committees and credit unions with additional challenge and/or assurance with respect to how they run their institutions. However, it is the PRA’s view that if external audit and internal audit services are provided by the same third party company the internal audit function cannot genuinely retain its independence. If credit unions have such arrangements in place, the PRA expects them to take steps – at an appropriate point such as a break in the existing contract – to ensure that any services are provided by separate parties. We intend to cover this matter in a supervisory statement to be issued in early 2016.
Update on 25 November 2015 - In Autumn 2015 the PRA supported a series of FCA-led workshops throughout the United Kingdom for credit unions about the Senior Managers and Certification regime, and to ensure they are prepared for the grandfathering deadline of 8 February 2016 and the start of the new regimes on 7 March 2016. The slides are available on the FCA's website (links below), and firms are reminded to refer to the 7 July 2015 item below, start preparing their submissions on Connect and stay updated of developments on the dedicated Strengthening Accountability webpage.
Improving individual accountability: Workshops for credit unions
Electronic submission of Grandfathering and Statements of Responsibilities
Update on 15 October 2015 - Following the recommendations of the Fair and Effective Markets Review (FEMR), HM Treasury issued a consultation on the extension of the accountability regime, as well as changes to some areas relevant for banks, building societies, credit unions and PRA-designated firms as they prepare for implementation on 7 March 2016 - see the
The new Senior Managers and Senior Insurance Managers regimes will be implemented on 7 March 2016 and firms should continue to make preparations to meet the deadlines, including 8 February 2016 for the submission of grandfathering notifications and relevant documentation. Firms should continue to refer to the dedicated Strengthening Accountability webpage.
Update on 12 October 2015 - Attendee feedback from the Financial Conduct Authority’s workshops for credit unions has been very positive, with many remarking that the workshop has given them a much better understanding of the regimes and what they need to do to prepare for their introduction. The PRA and FCA encourage credit unions to attend these sessions as part of their preparations. The workshops continue to 11 November – for further information and contact details, please visit the FCA’s events page.
Update on 3 September 2015
- On 2 September, the Financial Conduct Authority issued invitations to firms and industry stakeholders to its workshops for credit unions. For further information and contact details, please visit the FCA’s events page
Update on 10 August 2015 - PRA Annual Assessment 2015 - Category 5 Credit Unions
In August 2015, the PRA wrote to category 5 credit unions with the findings of the 2015 assessment. Credit unions received one of four letters, depending on which peer group they fell into – the letters are attached in Resources.
Update on 7 July 2015 - the PRA and Financial Conduct Authority published a package of policy on the introduction of the new Senior Managers Regime (SMR) and Certification Regime (CR) for UK banks, building societies and credit unions. Firms will have until 8 February 2016 to notify the regulators (PRA and FCA) of the names of their senior staff who will be senior managers under the new regime. The new regimes will come into force on 7 March 2016.
Senior Managers Regime
For credit unions the SMR will focus accountability on key decision makers and cover fewer individuals than the Approved Persons Regime (APR).
The rules state that a credit union must appoint at least one individual to perform:
SMF8 Credit Union Senior Manager function (PRA/FCA function); and
SMF17 Money laundering reporting function (FCA only function).
Individuals currently approved to perform a Significant Influence Function (SIF) under the APR will be eligible to grandfather into the SMR, ie they would be able to perform a Senior Management Function (SMF) equivalent to the role they are currently approved for without requiring further approval.
Credit unions will be required to assess and certify at least annually the fitness and propriety of employees deemed capable of causing significant harm to the credit union or any of its members.
What do credit unions need to do?
Credit unions will need to take action to prepare for implementation, including the following steps to:
i. discuss how the key responsibilities will be allocated. In particular, to consider the allocation of Prescribed Responsibilities set out in the PRA’s rules;
ii. identify which existing SIFs will grandfather into SMFs;
iii. using the simplified set of prescribed responsibilities for credit unions, start drafting the Statements of Responsibilities for the relevant individuals;
iv. understand the requirements of the SMR, CR and Conduct Rules; and
v. start developing the content and format of the Responsibilities Map, taking into account the size, business model and structure of the credit union.
To grandfather individuals, credit unions must submit the following to the PRA and FCA no later than 8 February 2016:
- a notification form containing details of all current SIFs to grandfather to an SMF (Form K);
- a Statement of Responsibilities for each individual (SOR – Grandfathering form); and
- a Responsibilities Map.
Information about the new regimes and a list of publications and forms are available on the dedicated Strengthening Accountability webpage. Forms should not be submitted yet. Further information on how to do this, and any supporting notes for credit unions, will be issued in Q4.
Update on 2 July 2015 - the PRA published slides from an industry briefing on Consultation Paper 22/15 ‘Reform of the legacy Credit Unions sourcebook’. A copy of the slides from the event is available below:
Update on 24 June 2015 - the PRA and Financial Conduct Authority (FCA) published joint consultation CP22/15 'Reform of the legacy Credit Unions Sourcebook'. For more details please see Consultation Paper 22/15.
The PRA is increasingly being asked how credit unions should treat their dormant accounts. The PRA has noted the following points as a result of this which credit unions should note and act upon where necessary:
1. Some credit unions pool together dormant accounts. Credit unions must ensure that they are still able to identify and allocate funds to individual members in order to meet applicable Single Customer View requirements.
2. In no circumstances can such money pooled together be used to count towards a credit union’s capital. The money is due to members and cannot be called upon in the event of financial stress.
3. Neither CREDS nor the credit union regulatory returns distinguish between active and dormant members. Dormant members count towards membership for the purposes of calculating the capital requirement.
Credit Unions Supervision Team address
Credit Union Supervision Team
Prudential Regulation Authority
London EC2R 6DA