Prudential Regulation Authority Rulebook

6.1

For the purposes of this Chapter, a loan is not an investment if it is provided by a credit union on subordinated terms.

6.2

Surplus funds must be invested in capital-protected products in accordance with this Chapter or held as cash in the custody of officers of a credit union.

6.3

Subject to 6.4, a credit union must not hold investments, save that it may hold an investment that is:

1. (1) a deposit placed with a credit institution which is authorised in an EEA State to accept deposits on terms that the deposit shall be repayable within at most twelve months from the date on which that investment is made;
2. (2) a loan, other than a subordinated loan qualifying as capital within the meaning given in 8.2, to a credit institution which is authorised in an EEA State to accept deposits, with a maturity of up to twelve months from the date on which that investment is made;
3. (3) a sterling-denominated security issued by the government of an EEA State, with a maturity of up to twelve months from the date on which that investment is made; or
4. (4) a fixed-interest sterling-denominated security guaranteed by the government of an EEA State, with a maturity of up to twelve months from the date on which that investment is made, provided that such guarantee is unconditional in respect of the payment of both principal and interest on the security.

6.4

A credit union that holds an investment set out below must at all times while holding such investment comply with 10.3:

1. (1) a deposit placed with a credit institution which is authorised in an EEA State to accept deposits on terms that the deposit shall be repayable within at most twelve months from the date on which that investment is made;
2. (2) a loan, other than a subordinated loan qualifying as capital within the meaning given in 8.2, to a credit institution which is authorised in an EEA State to accept deposits with a maturity of up to five years from the date on which that investment is made;
3. (3) a sterling-denominated security issued by the government of an EEA State, with a maturity of up to five years from the date on which that investment is made;
4. (4) a fixed-interest sterling-denominated security guaranteed by the government of an EEA State, with a maturity of up to five years from the date on which that investment is made, provided that such guarantee is unconditional in respect of the payment of both principal and interest on the security; or
5. (5) any other product provided by a credit institution authorised in an EEA State to accept deposits, with a maturity of up to five years from the date on which that investment is made, provided it satisfies the requirement in 6.2.

6.5

Prior to making an investment decision, a credit union must carry out an assessment to satisfy itself that:

1. (1) it has sufficient liquidity to tie-up the relevant funds for the life of the product;
2. (2) it can afford to sacrifice any haircut on early redemption;
3. (3) by comparison with other possible uses of the funds in question, the potential return merits the risk of investment for the period to maturity of the investment, including the risk of no positive return; and
4. (4) the investment would not create excessive source or time band concentrations.

6.6

A credit union must retain, for a period of five years following the date of the investment, a written record of the assessment in 6.5.