Credit Union Statement of Principles (January 2011)

Summary

This is the Bermuda Monetary Authority's Statement of Principles under the Credit Unions Act 2010, explaining how the Authority interprets the minimum licensing criteria and prudential requirements (Schedules 2 and 3 of the Act) and how it will exercise its powers to grant, restrict or revoke licences and to obtain information from credit unions. It applies to entities licensed or seeking to be licensed as credit unions in Bermuda.

• Fitness and propriety: Directors, the CEO and senior executive officers must be fit and proper persons, and the Authority must be notified of their appointment within 14 days.
• Governance: At least two individuals must effectively direct the business (the four eyes principle); the board should have an odd number of directors, no fewer than five, mostly non-executive.
• Prudent conduct and insurance: Credit unions must maintain adequate records, systems of control, and appropriate insurance cover against infrastructure damage or member claims.
• Investment policy: The board must formulate and review an investment policy and management must report to the board monthly on investments.
• Lending and arrears policies: Credit unions must maintain a board-approved Lending Policy (reviewed at least annually) and a documented Arrears Management Policy, and must provide the Authority with a current copy of the Lending Policy.
• Provisioning: Provisions for doubtful debts should follow the World Council of Credit Unions standard: 35% of outstanding balance for loans delinquent 30 to 365 days and 100% for loans delinquent over 365 days.
• Capital reserves: A credit union must maintain reserve fund and institutional capital of at least 10% of total assets, funded by placing 25% of net surplus into the reserve fund annually until that threshold is met.
• AML/ATF compliance: As deposit-taking institutions, credit unions are regulated financial institutions under the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 and must comply with those Regulations and related Guidance Notes, including senior management responsibilities, internal controls, customer due diligence, and suspicious activity reporting.
• WOCCU principles: The Authority will also have regard to a credit union's adherence to World Council of Credit Unions governance, safety and soundness, and consumer protection principles when supervising credit unions.

The Authority may revise these Principles from time to time and will publish any changes or issue revised versions when its approach develops significantly.

Key obligations

• Notify the Authority of the appointment of directors, the chief executive officer and senior executive officers within 14 days of appointment
• Maintain a board of directors with an odd number of members, no fewer than five, with a majority of non-executive directors
• Ensure at least two individuals effectively direct the business (four eyes principle)
• Maintain adequate accounting records and systems of control commensurate with the nature and scale of operations
• Hold appropriate insurance cover against infrastructure damage and member claims
• Adopt and maintain a board-approved investment policy, reviewed and revised annually, and produce monthly investment reports to the board
• Maintain a board-approved Lending Policy, reviewed at least once a year, and provide the Authority with a current copy of it
• Maintain a documented Arrears Management Policy and review it regularly
• Maintain provisions for doubtful debts in line with the WOCCU delinquency provisioning standard (35% for 30-365 days delinquent, 100% for over 365 days)
• Maintain a reserve fund and institutional capital of not less than 10% of total assets, placing 25% of net surplus into the reserve fund annually until that threshold is reached
• Comply with the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008, including customer due diligence, suspicious activity reporting and record keeping

Applies to

credit unions

Deadlines

• within 14 days of appointment: Notification to the Authority of appointment of directors, CEO and senior executive officers
• at least once a year: Review of the credit union's Lending Policy
• annually: Review and revision of the investment policy
• monthly: Management report to the board detailing investment activity
• at the close of each financial year: Placement of 25% of net surplus into the reserve fund until institutional capital equals 10% of total assets
• since 1 January 2009: Authority's duty to monitor AML/ATF regulated institutions, including credit unions, under the Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008

Related documents

• This document is made under Credit Unions Act 2010