PRA - Occasional Consultation Paper
We limit our response to section 6 of the explanatory material and appendices 9 and 10 which set out the proposed new rules. We would like to make clear our full support for the clarifications which greatly aid understanding and we would like to put on record our thanks for the responsive and co-operative way in which the PRA has responded to the ambiguities in the original rules coming to light.
In addition to the changes proposed, we would also like to suggest two further minor amendments which we believe would also aid comprehension and reduce the potential for misunderstanding.
Firstly, we would like to suggest a re-wording of rule 3.5 as follows:
Subject to 3.6 and 3.7, if a credit union satisfies the requirements in 10.3 it may make:
(1) To a member, a loan up to 1.5% of total non deferred shares in excess of that member’s shares
(2) To another credit union that is not a member, a loan up to 1.5% of total non deferred shares."
This wording would be consistent with the change proposed by the consultation in respect of rule 3.3. The intention is to make clear that the purpose of the rule is to limit the making of new loans where the conditions at rule 10.3 are not satisfied. The wording of the existing rule, on the contrary, suggests instead that the credit union can not legitimately hold loans of such large balances where it fails to meet the conditions of 10.3 at any point during the life of the loan. We do not believe this is the PRA’s intention, particularly since the substitution of "hold" for "make" has been effected in 3.3 under the proposals in the consultation.
Secondly, in the definitions provided in appendix 10 “Net Zero Cost Funds” is defined as "The total sum of a credit union’s capital and liabilities excluding any liabilities that are not subject to interest payable by or charges to the credit union. In practical terms, this is likely to constitute a credit union’s reserves". We highlight the word "not" in the definition as we believe this changes the meaning of the definition to the opposite of what is intended. Given the definition is trying to identify funds that do not have a cost, it would appear that the calculation should exclude those funds that are subject to interest or charges payable by the credit union, rather than the opposite.
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