Reform of the legacy Credit Unions sourcebook

Reform of the legacy Credit Unions sourcebook

This joint Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) consultation sets out proposals to reform the legacy Credit Unions sourcebook (CREDS), one of the modules of the Handbook inherited by the two regulators from the Financial Services Authority (FSA).

When the FSA’s powers passed to the PRA and FCA on 1 April 2013, each of the new regulators adopted its own version of CREDS, by designating its provisions as ‘PRA-only’, ’FCA only’ or ‘shared’.  The PRA now proposes to delete CREDS in its entirety and to replace it with a new Credit Unions Part of the PRA Rulebook, while the FCA proposes to retain only those parts of CREDS that relate to its own statutory responsibilities.  The PRA’s proposals deal exclusively with matters affecting the financial safety and soundness of credit unions, and the FCA’s proposals concern the ways in which credit unions conduct business.

The review has taken into account feedback on the regulatory approach received by HM Treasury in response to its ‘Call for Evidence: British Credit Unions at 50’ and also the impact on Northern Ireland credit unions of the restrictions on investment in CREDS.  Beyond this, the PRA has drawn on its experience of supervising credit unions to revise its rules in a way that takes account of significant developments in the sector, which are leading to increased diversification in credit union business models.

The consultation is particularly relevant to credit unions, credit union trade bodies and third parties that interact regularly with the credit union sector.

Summary of proposals

The consultation paper sets out the proposed rules for the new Credit Unions Part of the PRA Rulebook. The key proposed changes are:

  • Limit on shares and deposits - the amount of money that a credit union may accept as shares (from a member) or as deposits (from a person too young to be a member) would be capped at the maximum amount of compensation that is generally available from official sources if the credit union fails.
  • Framework for additional specified activities - the historical version 1 and version 2 model for credit union activities would be replaced with a flexible framework based on a credit union’s specific business model.

A summary of the main PRA changes are set out in the ‘Key resources’ below.

The FCA’s proposed changes are to:

  • clarify the responsibilities of the FCA (as distinct from those of the PRA) within the FCA CREDS;
  • change some current guidance provisions into rules;
  • adjust credit unions’ regulatory reporting arrangements; and
  • correct oversights, omissions, inconsistencies and outdated provisions.

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