Credit Unions Act 2010 - Statement of Principles (January 2011)

Summary

This Statement of Principles, issued by the Bermuda Monetary Authority under section 5 of the Credit Unions Act 2010, explains how the Authority interprets the Act's minimum licensing criteria and prudential requirements and how it will exercise its powers to grant, restrict, or revoke a credit union licence and to obtain information and reports. It applies to credit unions licensed or seeking to be licensed under the Act, and to their directors, officers and senior management.

• Fit and proper persons: Directors, the CEO and senior executive officers must meet fitness and propriety criteria; their appointment must be notified to the Authority within 14 days.
• Four eyes principle: At least two individuals must effectively direct the business, jointly formulating and implementing policy and sign-off on significant decisions.
• Board composition: The board should have an odd number of directors, no fewer than five, with a majority of non-executive directors.
• Prudent conduct: Credit unions must maintain adequate records, systems of control, and appropriate insurance cover against infrastructure damage or member claims.
• Investment policy: The board must set and annually review an investment policy; management must report investment activity to the board monthly.
• Lending and arrears policies: A board-approved Lending Policy (reviewed at least annually and filed with the Authority) and a documented Arrears Management Policy are required.
• Provisioning: Provisions for doubtful debts should follow the WOCCU standard: 35% of outstanding balance for loans 30-365 days delinquent, 100% for loans over 365 days delinquent.
• Reserve funding: A credit union must maintain a reserve fund and institutional capital of at least 10% of total assets, placing 25% of net surplus into the reserve fund each financial year 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 associated Guidance Notes.

The Authority also states it will have regard to a credit union's adherence to World Council of Credit Unions principles on governance, safety and soundness, and consumer protection when exercising its supervisory functions.

Key obligations

• Notify the Authority of the appointment of directors, the chief executive officer and senior executive officers within 14 days of appointment
• Ensure directors, CEO and senior executive officers are fit and proper persons with relevant skills and experience
• Maintain at least two individuals effectively directing the business under the four eyes principle
• Maintain a board with an odd number of directors, no fewer than five, with a majority of non-executive directors
• Maintain adequate insurance cover appropriate to the scale and risks of the business
• Adopt and annually review a board-approved investment policy and provide monthly investment reports to the board
• Adopt a board-approved Lending Policy, review it at least annually, and provide the Authority with a current copy
• Maintain a documented Arrears Management Policy and review it regularly
• Provide 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, allocating 25% of net surplus to the reserve fund at the close of each financial year until the threshold is reached
• Comply with the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 as a regulated deposit-taking institution

Applies to

credit unions, directors and officers of credit unions

Deadlines

• within 14 days of appointment: Notify the Authority of the appointment of directors, CEO and senior executive officers
• annually: Review the credit union's Lending Policy
• annually: Review the credit union's investment policy
• monthly: Management must report investment activity to the board
• at the close of each financial year: Place 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