CITM2110 - Accreditation of community development finance institutions (CDFIs): Withdrawal of accreditation - investment fund limits

SI2003/96 Regulations 15 & 15A-E

Accreditation as a CDFI is conditional on the accredited body investing specified proportions of its investment fund within defined time limits (see CITM3005).

Where the CDFI fails to satisfy these conditions its accreditation is withdrawn with effect from the time of the failure.

But accreditation is not withdrawn if, on application, the Secretary of State is satisfied that:

  • the failure to meet the required onward investment levels was a result of circumstances outside the control of the CDFI (or persons connected to it), and
  • the CDFI took reasonable steps to try to avoid the failure and to mitigate the extent of the failure.

The procedures to be followed by CDFIs that either expect to fail, or actually have failed, to meet the onward investment requirement and would like the Secretary of State to consider its circumstances are set out below.

There is no obligation on a CDFI that anticipates a failure to meet it onward investment requirements to apply to the Secretary of State in advance of the failure occurring. But early applications to, and decisions by, the Secretary of State may give CDFIs (and their investors) comfort that proposed measures to avoid or mitigate the failure are regarded as reasonable.

All applications should be made to BIS - see CITM2010. If any application by the CDFI contains insufficient information for the Secretary of State to make a decision he seeks further information from the CDFI.

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Anticipated failures

Where, before the end of the relevant year, a CDFI expects to fail to meet the onward investment requirement it may write to the Department for Business, Innovation & Skills (BIS) to ask the Secretary of State not to withdraw accreditation if the CDFI does later fail to meet that requirement for the year.

Application Process (anticipated failures)

In its application the CDFI must state:

  • the circumstances that lead it to expect that it will fail to meet the onward investment requirement,
  • the measures that it has taken to avoid the failure and to ensure that the amount of the investment fund that is invested in relevant investments in qualifying enterprises (suitably invested) is as high as possible,
  • if the anticipated failure relates to one of the first three years following its initial accreditation:
    • the maximum proportion of the investment fund suitably invested at the time of the application,
    • the maximum proportion of the investment fund that would have been suitably invested at the time of the application if it had not been for the adverse circumstances, and
    • the maximum proportion of the investment fund that it expects to achieve for the year as a result of the measures it is now taking, or plans to take,
  • if the anticipated failure relates to the fourth or subsequent years following its initial accreditation:
    • the average percentage (calculated on a daily basis - see Method 1: CITM3005) of the investment fund that has been suitably invested for each day of the year up to the time the application is made, and
    • the average percentage calculated on either a daily basis (Method 1: CITM3005) or a quarter day basis (Method 2: CITM3005) that it expects to achieve for the year as a result of the measures it is now taking, or plans to take.

If after making an initial application (and having had a decision from the Secretary of State) a CDFI foresees that it will not be able to take the measures outlined in its application or that different measures are needed in order to maximise the amount of the investment fund that will be suitably invested it should make a further application.

If the CDFI makes an application in respect of an anticipated failure but has not received a decision on that application before the end of the relevant year (and it indeed fails to meet the onward investment requirement for that year) the CDFI should make a fresh application in respect of the actual failure.

Decision by Secretary of State (anticipated failure)

Where a CDFI makes such an application and the Secretary of State is satisfied that:

  • the anticipated failure to meet the required onward investment requirement is due to the circumstances stated in the application,
  • those circumstances are outside the control of the CDFI (or persons connected to it), and
  • the measures that the CDFI proposes to take to try to avoid the failure and mitigate its extent are reasonable ones

he will decide that, if it transpires that the specified measures are taken but the CDFI goes on to fail to meet the onward investment requirement as a result of the specified circumstances, he will not withdraw accreditation because of that failure. BIS will let the CDFI know the Secretary of State’s decision.

If a CDFI makes several applications in respect of anticipated failures (resulting from differing circumstances) and the Secretary of State has not made decisions on all earlier applications for the same year he will not make a decision on withdrawing the CDFI’s accreditation unless he is satisfied that it should not be withdrawn in respect of each and every application.

Where the Secretary of State has made a decision not to withdraw accreditation in respect of an application concerning an anticipated failure he is not prevented from withdrawing accreditation if he considers that a subsequent actual failure was due to circumstances that were not the subject of any application (whether relating to an anticipated failure or actual failure).

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Actual failures

Where a CDFI realises it has failed to meet the onward investment requirement it may write to the Department for Business, Innovation & Skills (BIS) within three months of the end of the relevant year to ask the Secretary of State not to withdraw accreditation despite that failure.

Application Process (actual failures)

In its application the CDFI must state:

  • the circumstances that led to its failure to meet the onward investment requirement,
  • the measures it took to avoid the failure,
  • if the anticipated failure relates to one of the first three years following its initial accreditation:
    • the maximum proportion of the investment fund that was suitably invested during the year,
    • the maximum proportion of the investment fund that would have been suitably invested if it had not been for the adverse circumstances,
  • if the anticipated failure relates to the fourth or subsequent years following its initial accreditation:
    • the average percentage, calculated on either a daily basis (Method 1: CITM3005) or a quarter day basis (Method 2:CITM3005), of the investment fund that was suitably invested for the year, and
    • the average percentage, calculated on either basis, of the investment fund that would have been suitably invested for the year if it had not been for the adverse circumstances.

Decision by Secretary of State (actual failures)

Where a CDFI makes such an application and the Secretary of State is satisfied that:

  • the failure to meet the required onward investment requirement was due to the circumstances stated in the application,
  • those circumstances were outside the control of the CDFI (or persons connected to it), and
  • the measures that the CDFI took to try to avoid the failure and mitigate its extent are reasonable ones

he will decide that he will not withdraw accreditation because of that failure. BIS lets the CDFI know of the Secretary of State’s decision.

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