Credit Union and Co-operation with Overseas Regulators Act 2012

30.

Liquidity and stress testing, etc.

30.— The Principal Act is amended by inserting the following section after section 85:

“Liquidity.

85A.— (1) In this section—

‘liquid assets’ means the assets held by a credit union to enable it to meet its obligations as they arise;

‘maturity mismatch’ means the ongoing or possible future divergence between a credit union’s assets and liabilities because non liquid assets of the credit union have not or, at the appropriate time, will not have matured;

‘total assets’ means all the assets of a credit union having due regard to the accounting principles in section 110 after deducting provisions for bad and doubtful debts.

(2) A credit union shall at all times keep a proportion of its total assets in liquid form (in this section referred to as ‘liquid assets’) so as to enable the credit union to meet its obligations as they arise. The proportion of assets kept in liquid form shall take into account the nature, scale and complexity of the credit union, and the composition and maturity of its assets and liabilities.

(3) The Bank may prescribe the liquidity requirements that a credit union is required to maintain at a minimum as well as conditions on the application of the liquidity requirements. Regulations made by the Bank for the purpose of this section may deal with other matters related to minimum liquidity requirements, including—

( a) the proportion and nature of assets to be held in liquid form,

( b) the holding of liquid assets based on the duration of loans,

( c) in relation to maturity mismatches, and

( d) the liquid assets to be held as a safeguard on the basis of stressed conditions that may arise.

(4) In prescribing matters for the purposes of this section, the Bank shall have regard to the need to ensure that the requirements imposed by the regulations made by it are effective and proportionate having regard to the nature, scale and complexity of credit unions, or the category or categories of credit unions, to which the regulations will apply.

Supplemental provisions to sections 85 and 85A.

85B.— (1) In this section—

‘liquid assets’ has the meaning given by section 85 or 85A, as appropriate in the circumstances;

‘maturity mismatch’ has the meaning given by section 85A(1);

‘stress test’, in relation to a credit union, means the analysis of its cash flows under various headings and the placing of such cash flows in pre-determined time periods subject to specified conditions, including monetary limits where appropriate, to estimate the extent to which a credit union may have a maturity mismatch in respect of its assets and liabilities.

(2) ( a) Pending the prescribing by the Bank of minimum liquidity requirements for the purposes of section 85A in respect of a category of credit unions, the liquidity requirements applicable to credit unions under section 85 shall continue to apply to such category of credit unions in respect of matters so prescribed.

( b) Where minimum liquidity requirements have been prescribed by the Bank for the purposes of section 85A in respect of a category of credit unions, then section 85 shall cease to apply to that category of credit unions in respect of the matters so prescribed.

(3) The Bank may, from time to time, require any credit union or credit unions (either generally or a particular category of credit union) to undertake stress tests into what would be the consequences for its liquidity if one or more scenarios were to arise. The terms of the stress test shall be laid down by the Bank including without limitation requirements on the frequency of stress tests, reporting arrangements for stress test results and requirements to develop contingency plans.

(4) In requiring a credit union to undertake any matter for the purposes of this section, the Bank shall have regard to the need to ensure that the requirements are effective and proportionate having regard to the nature, scale and complexity of the credit union.”.