CP13/25 – Credit Union Service Organisations

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Responses are requested by Friday 24 October 2025.

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In the policy statement for this consultation, the PRA will publish an account, in general terms, of the representations made as part of this consultation and its response to them. In the policy statement, the PRA is also required to publish a list of respondents to its consultations, where respondents have consented to such publication.

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Responses can be sent by email to: CP13_25@bankofengland.co.uk.

Alternatively, please address any comments or enquiries to:

Rosie Young
Credit Unions team, 3rd floor
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA

1: Overview

1.1 This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposed rules and expectations in respect of credit unions that invest in, or wish to invest in, Credit Union Service Organisations (CUSOs). It also proposes other clarificatory amendments.

1.2 The proposals in this CP would result in changes to the Credit Unions Part of the PRA Rulebook (Appendix 1) and supervisory statement (SS) 2/23 – Supervising credit unions.

1.3 The policy proposals included in this CP are:

• amendments to the PRA’s investment rules to permit credit unions to invest in CUSOs, together with the expectations of credit unions that invest in or use CUSOs, to be set out in SS2/23;
• amendments to Chapter 17 of SS2/23 resulting from the proposed deletion of SS20/15 (see CP11/25 – Discontinuing SS20/15: Supervising building societies’ treasury and lending activities).

1.4 CUSOs are entities that are owned by credit unions and provide shared services to them, thereby providing economies of scale benefits. The PRA has seen a number of CUSOs being set up across the UK, however, rules in the Credit Unions Part of the Rulebook may prevent a credit union from holding an interest/investment in a CUSO, depending on how that interest is structured. In recognition of the potential for CUSOs to play an important role in facilitating credit union growth, the PRA proposes to amend its rules to make it clearer that credit union investments in CUSOs are permitted, while providing ‘guardrails’ to manage the associated prudential risks.

1.5 The PRA’s primary objective of firm safety and soundness would be advanced through robust prudential expectations for credit unions that invest in CUSOs to ensure that credit unions manage the associated risks. Being supportive of CUSOs may also help the PRA align with the government’s priority to support the mutuals sector, helping the PRA advance its competition objective (supporting smaller financial institutions – levelling the playing field) and its secondary competitiveness and growth objective (facilitating innovation and growth through the mutual sector).

1.6 The CP is relevant to PRA-authorised credit unions and their trade bodies.

1.7 The PRA has a statutory duty to consult when introducing new rules – section 138J of the Financial Services and Markets Act 2000 (FSMA), or new standards instruments (s138S of the FSMA). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so. 

1.8 None of the statutory practitioner panels were consulted about the proposals in this CP, although the PRA has engaged with relevant credit unions and credit union trade bodies prior to drafting its proposals.

1.9 In carrying out its policymaking functions, the PRA is required to comply with several legal obligations. The analysis in this CP explains how the proposals have had regard to the most significant matters, including an explanation of the ways in which having regard to these matters has affected the proposals.

Implementation

1.10 The PRA proposes that the implementation date for the changes resulting from this CP would take effect upon publication of the final policy.

Responses and next steps

1.11 This consultation closes on Friday 24 October 2025. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP13_25@bankofengland.co.uk.

1.12 When providing your response, please tell us whether or not you consent to the PRA publishing your name, and/or the name of your organisation, as a respondent to this CP.

1.13 Please also indicate in your response if you believe any of the proposals in this consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

2: The PRA’s proposals

Credit union investments in Credit Union Service Organisations (CUSOs)

Rule amendments

2.1 The PRA proposes to amend the Credit Union investment rules to make it clear that credit union investments in CUSOs are permitted (see Appendix 1 for the draft instrument). The PRA also proposes to set expectations of credit unions that invest in or use CUSOs in a new chapter of SS2/23 (see Appendix 2).

2.2 CUSOs are entities that are owned by credit unions and provide shared services to them, with the potential to provide a suite of material benefits, including:

• access to (and control of) shared services (such as administrative, professional, management and technology services);
• benefits from economies of scale such as reduced costs;
• access to new (and potentially better quality) services that a credit union could not offer by itself (eg because the service is too costly); and
• a potential revenue stream for credit unions that would not be available within the confines of the credit union.

Given the challenges many credit unions face in obtaining affordable and good-quality services the PRA recognises that CUSOs can have an important role in facilitating credit union growth and ensuring their sustainability. However, rules in the Credit Unions Part of the Rulebook may prevent a credit union from holding an interest/investment in a CUSO, depending on how that interest is structured. The PRA, therefore, proposes to amend its rules to make it clear that credit union investments in CUSOs are permitted. Credit unions in Great Britain would also need to ensure that any interest/investment in a CUSO meets the legislative prohibition on subsidiaries.^{footnote [1]}

2.3 The PRA notes that removing barriers to CUSOs is also in line with its broader mutuals work in support of the government’s commitment to unlocking the full potential of the mutual and cooperative sector, and the request for a report from the PRA and the FCA on the mutuals landscape to support growth.

Supervisory statement

2.4 At the same time, the PRA is cognisant of the risks inherent in CUSOs, including reliance on third parties without adequate governance and controls, movement of activity to non-supervised entities, the creation of single points of failure and step-in risk. The PRA, therefore, proposes a new chapter of SS2/23 to set out the PRA’s expectations of credit unions that invest in or use CUSOs to manage associated prudential risks. These include expectations that credit unions carry out due diligence and risk analysis before investing in a CUSO and expectations to ensure that the liability of an investing credit union is limited to the amount that they have invested. It is proposed that this amount should be no more than 5% of a credit union’s capital (across all CUSOs) where a credit union uses its own capital to fund the investment. The PRA welcomes feedback on these proposals.

Consequential amendments to SS2/23 as a result of deletion of SS20/15

2.5 The PRA also proposes to make minor amendments to Chapter 17 of SS2/23 resulting from the PRA’s proposed deletion of SS20/15 – Supervising building societies treasury and lending activities (see CP11/25). These amendments can be found in Appendix 2.

PRA objectives analysis

2.6 The PRA’s proposed expectations are intended to help credit unions manage the prudential risks that are associated with holding investments in a CUSO and, therefore, should help advance the PRA’s objective of promoting the safety and soundness of firms.

2.7 The PRA has assessed whether the proposals in this CP facilitate the PRA’s secondary competition objective. CUSOs play an important role in facilitating credit union growth and ensuring their sustainability. Therefore, being supportive of CUSOs could help the PRA advance both its competition objective (supporting smaller financial institutions – levelling the playing field) and its secondary competitiveness and growth objective (facilitating innovation and growth through the mutual sector).

Cost benefit analysis (CBA)

2.8 This section sets out the expected costs and benefits of the proposals in this CP, namely (1) of the proposed amendment of PRA rules to allow credit unions to invest in CUSOs; and (2) of the proposed expectations of credit unions that invest in CUSOs. We have not set out an analysis of the third proposal (amendments to Chapter 17 of SS2/23 resulting from the proposed deletion of SS20/15) as these amendments are minor consequential changes which are expected to have a negligible impact on credit unions.

2.9 The PRA considers that its proposals may result in affected credit unions (credit unions that wish to invest in or are already invested in CUSOs) incurring incremental costs. The costs to credit unions would arise from meeting the supervisory expectations to ensure appropriate risk management of their investment in a CUSO. The costs are expected to be limited, although some credit unions may wish to obtain external support, in order to meet the supervisory expectations, which would incur further costs. For example, a credit union may wish to obtain legal advice as to whether the credit union is legally and operationally separate from the CUSO and the credit union’s liability is limited to the amount invested. For the avoidance of doubt, credit unions that do not invest in or own CUSOs will not be affected by the PRA’s proposals and will not incur any direct costs. Similarly, credit unions that use CUSOs only (ie do not hold an investment or interest in a CUSO), will not be affected and should not incur any direct costs as a result of the PRA’s proposals. Alternatively, to avoid these incremental costs a credit union may choose not to invest in CUSOs. There is little experience from credit unions on which we can base a quantitative analysis of the costs, and the PRA does not consider it reasonably practicable to produce a quantitative estimate.

2.10 The PRA has also considered the potential impact on all credit unions if they were to lose hypothetical funds invested in a CUSO, which under the proposals is no more than 5% of their capital. The PRA analysis indicates that the sector is resilient to a loss of 5% of capital, based on analysis of credit unions quarterly returns data; while a requirement set at 10% of capital would result in a level of failures which is above PRA’s risk appetite.

2.11 The benefits of allowing credit unions to invest in CUSOs have been referred to (see paragraph 2.2), such as access to shared services and economies of scale benefits. The PRA recognises that many credit unions struggle to obtain high quality services at an affordable rate and CUSOs can have an important role to play in facilitating credit union growth. By removing barriers to CUSOs, credit unions will have more opportunities to access services at a more affordable cost as well as new and potentially better-quality services.

2.12 The additional expectations the PRA has proposed will provide benefits to both individual credit unions investing in CUSOs (to ensure that risks associated with investing in a CUSO, such as the risk that it has to step in to prop up a failing CUSO, are mitigated or managed), as well as the wider sector (such as providing credit unions with the confidence to use CUSOs in the knowledge that the CUSO owners have followed guidance to identify, manage and mitigate associated risks). If the PRA chose to take no action, a risk to the safety and soundness of credit unions that own or use CUSOs could materialise and there could be broader implications to the reputation of, and confidence in, the wider sector. The PRA does not consider it reasonably practicable to produce a quantitative estimate of these benefits.

2.13 Overall, the PRA judges the benefits of the proposed changes to outweigh the potential costs arising from the proposed supervisory expectations given the additional risks to safety and soundness posed by investment in a CUSO (for example, movement of activity to non-supervised entities and the creation of single points of failure).

‘Have regards’ analysis

2.14 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, and the aspects of the Government’s economic policy as set out in the HMT recommendation letter from November 2024. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

1. The principle that a burden or restriction which is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden (FSMA regulatory principle): In the setting of expectations of credit unions that invest in CUSOs, the PRA has been mindful of this principle and the need to balance the risks associated with CUSO investment/ ownership with their benefits and ensuring PRA expectations are not a barrier to sustainable growth. Accordingly, the PRA has set out a number of ways in which the expectations shall apply proportionately including an expectation that the nature of the CUSO be taken into consideration (eg where a CUSO provides trade body services only or is established as a conduit allowing multiple credit unions to contract as a single entity but does not itself provide any services then we do not propose the expectations apply).
2. The principle that the proposals should recognise differences in the nature of, and objectives of, businesses carried on by different persons (FSMA regulatory principle): in supporting CUSOs, the PRA has been mindful of the vast differences in size and business model of credit unions across the sector and that many credit unions cannot by themselves achieve economies of scale that larger firms can access.
3. Transparency (FSMA regulatory principle): the proposal to provide the sector with a clear view of the PRA’s position and expectations is consistent with this principle. The PRA also sent a sector letter setting out its intended approach in advance of the consultation, together with its intention to provide a modification by consent available to any credit union that currently holds an investment in a CUSO.
4. Efficient use of PRA resources (FSMA regulatory principle): while the proposed approach will involve some PRA resource, we believe this is proportionate given the risks (PRA resources required would be much greater if there were a CUSO failure which resulted in many credit union failures).

2.15 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for these proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for these proposals.

Impact on mutuals

2.16 FSMA requires that the PRA assesses whether, in its opinion, the impact of the proposed rules on mutuals will be significantly different from the impact on other firms, and if so, details of the difference. The proposals would only affect credit unions, which are all mutual institutions, and consequently there is no comparison to be made in compliance with this requirement.

Equality and diversity

2.17 In developing its proposals, the PRA has had due regard to the equality objectives under s.149 of the Equality Act 2010. The PRA considers that the proposals do not give rise to equality and diversity implications because credit union members that fall within the protected characteristics would be treated equally under the policy proposals.