Published on 13 March 2020
Credit unions: Review of the capital regime -PS6/20
Overview
This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 28/19 ‘Credit Unions: Review of the capital regime’ (see page 2 of 2). It also contains the PRA’s final policy, as follows:
- amendments to the Credit Union Part of the PRA Rulebook (Appendix 1); and
- the updated Supervisory Statement (SS) 2/16 ‘The prudential regulation of credit unions’ (Appendix 2).
This PS is relevant to all UK credit unions.
Summary of responses
The PRA received 40 responses to CP28/19. 36 respondents were fully supportive of the PRA’s proposals, although some of these respondents asked for clarification on a number of points. Four respondents did not support some or all of the proposals. The PRA provides feedback to requests for clarifications and objections to the proposals in Chapter 2.
A number of respondents made reference to matters outside the scope of the consultation, and in some cases, outside the PRA’s remit. The PRA sets out these matters in Chapter 2.
Implementation
The changes in this PS take effect from Monday 16 March 2020.
The policy set out in this PS has been designed in the context of the UK’s withdrawal from the European Union and entry into the transition period, during which time the UK remains subject to European law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the European Union take effect.
The PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA) at the end of the transition period. Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details.
Policy Statement 6/20Appendices
Appendix 1: PRA RULEBOOK: NON CRR FIRMS: CREDIT UNIONS INSTRUMENT
Appendix 2: SS2/16 ‘The prudential regulation of credit unions’
Published on 24 October 2019
Credit unions: Review of the capital regime - CP28/19
Overview
In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposed changes to the capital requirements that apply to credit unions. The proposals would result in amendments to the Credit Union Part of the PRA Rulebook (Appendix 1) and Supervisory Statement (SS) 2/16 ‘The prudential regulation of credit unions’ (Appendix 2).
The CP is relevant to all UK credit unions.
Summary of proposals
The key proposed changes are:
- for credit unions with more than £10m of total assets, to provide a greater degree of flexibility and remove barriers to growth by replacing the current regime with a “graduated rate” approach and removing the 2% capital buffer; and
- to reduce complexity in the capital regime by removing the association between credit union activities/membership size and capital requirements and to address the risks posed by these factors by other means.
The PRA also proposes changes to SS2/16 relating to smaller credit unions. The PRA has set new expectations in relation to credit unions with a capital to assets ratio in the 3-5% range, in which a credit union with a capital to assets ratio below 5% should be prepared to engage more fully with the PRA.
Responses and next steps
This consultation closes on Friday 24 January 2020. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP28_19@bankofengland.co.uk.
Implementation
The PRA proposes that the proposed changes would take effect upon publication of the final policy.