Published on 1 February 2016
Reform of the legacy Credit Unions sourcebook – PS4/16
This policy statement (PS) provides feedback by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to responses to PRA Consultation Paper (CP) 22/15 and FCA CP15/21, ‘Reform of the legacy Credit Unions sourcebook’, published jointly in June 2015.
The PS also contains PRA final rules and a supervisory statement intended to be read in conjunction with the rule instrument, and FCA final rules and guidance.
The PS also contains the FCA changes to the FCA Credit Unions Sourcebook (CREDS) as a result of the December 2014 consultation by the FCA on forms, transitional and consequential aspects of the new accountability framework for individuals working in banks, building societies, and credit unions (CP14/31).
In CP22/15 the PRA proposed to delete CREDS in its entirety and to replace it with a new Credit Unions Part in the PRA Rulebook dealing exclusively with matters affecting the financial safety and soundness of credit unions. This PS sets out final rules intended to replace all PRA-designated rules in the legacy sourcebook, ‘CREDS’ and includes amendments to rules concerning general organisational requirements and whistleblowing.
This policy statement is relevant to all UK credit unions, credit union trade bodies and third parties that interact with the credit union sector.
Proposals addressed by PS4/16
In light of feedback received to CP22/15 and CP15/21, some of the proposals have been revised including:
- limit on shares and deposits;
- framework for additional activities capital requirement and calculation of ratios relevant to business model;
- larger credit unions member numbers and capital requirements; and
- lending cap.
The changes following PRA and FCA CP22/15 and CP15/21 will come into force on 3 February 2016 with the exception of PRA rules on whistleblowing (Credit Unions 12), which come into force 7 September 2016 - see Credit Unions 18 for transitional rules for the period 7 March - 6 September 2016. The changes following FCA CP14/31 will enter into force on 7 March 2016 (in line with the other provisions related to the accountability regime).
Summary of content
The appendices to the PS set out:
- Rule changes including:
a. the Credit Union Rulebook Part of the PRA Rulebook
b. amendments to the Glossary of the PRA Rulebook
c. amendments to the Depositor Protection Part of the PRA Rulebook
- Supervisory Statement SS2/16 - The prudential regulation of credit unions
Published on 24 June 2015
Reform of the legacy Credit Unions sourcebook - CP22/15
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 Matrices 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.
This consultation closed on 30 September 2015.