CP15/26 – Northern Ireland Credit Unions: Implementing legislative changes

2: Overview

2.1 This CP sets out the PRA’s proposed amendments to its rules in respect of planned legislative changes to credit union legislation in Northern Ireland announced by the DfE – The Credit Union (Modernisation and Reform) Public Consultation. It also proposes additional PRA expectations in respect of managing risks associated with these changes and new activities.

2.2 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 (Appendix 2).

2.3 The policy proposals included in this CP are:

• a new chapter in SS2/23 to set out the PRA’s expectations to manage the risks associated with changes set out by the Northern Irish legislative amendments, including:
  • the referral of members to other NICUs; and
  • loan participation;
• amendments to the Credit Unions Part of the PRA Rulebook to accommodate the legislative changes, including incorporating member referral and loan participation in the definition of ‘additional activities’.

2.4 The PRA’s primary objective of firm safety and soundness would be advanced through robust prudential expectations to manage the risks associated with the new activities permitted from the legislative changes. The proposals may help support the PRA’s secondary competition objective and its secondary competitiveness and growth objective as they support legislative change enabling NICUs to offer a broader range of services, helping NICUs to compete more effectively with other providers, and removing barriers to growth.

2.5 The CP is relevant to PRA-authorised NICUs.

Background

2.6 The PRA has responsibility for regulating Northern Irish credit unions as well as those in Great Britain. In April 2025, the DfE in Northern Ireland consulted on a number of proposed reforms to modernise the credit union sector in Northern Ireland with the aim of ‘ensuring it remains sustainable, inclusive and better able to meet the financial needs of its members and communities for the future’. In May 2026, the DfE published its final policy statement setting out how it will progress policy changes and its approach to reforming the credit union legal framework (the ‘NICU Policy’) – The Credit Union (Modernisation and Reform) Public Consultation – Next Steps.

2.7 The Northern Ireland Executive has introduced draft primary legislation to take forward a number of its policy proposals, which is intended will be enacted by April 2027 (the Credit Unions (Amendment) Bill). The Credit Unions Bill includes provisions giving effect to the DfE’s policy proposals relating to member referral, loan participation, the issue of deferred shares and additional activities. The proposals in this CP have been prepared, and are dependent, upon the assumption that the legislation enacted by the Northern Ireland Assembly is in line with the Credit Unions Bill introduced by the DfE. The baseline for this CP is therefore the Credit Unions Bill.

2.8 This CP sets out a number of amendments to the PRA rules to accommodate the anticipated legislative changes. It also introduces additional expectations in the credit union SS to manage the risks associated with these changes.

Implementation

2.9 PRA proposes that the implementation date for the changes resulting from this CP would be April 2027 so as closely to align with the intended effective date for the legislation. 

3: The PRA’s proposals

Referral of members to other NICUs

3.1 This legislative change will allow NICUs to refer members to other NICUs to access services or products. The effect of this is that when a member is referred to another NICU, the member concerned is to be treated as a member of the receiving NICU. This applies only for the purpose of providing the service concerned and for the period during which that service is provided.

3.2 The PRA aims to ensure that the associated prudential risks are appropriately managed by amending its rules to bring such activity within its ‘additional activities’ framework and clarifying the application of its rules on lending to referred members. The revisions to SS2/23 also aim to ensure that this activity is managed effectively by setting clear expectations on governance, due diligence, and contractual clarity. In particular, the PRA emphasises that responsibility for credit risk sits with the receiving credit union. Arrangements should therefore be structured to avoid risk transfer back to the referring firm, thereby supporting the safe and sustainable expansion of services.

PRA objectives analysis

3.3 These changes support the PRA’s safety and soundness objective by ensuring that referral arrangements are structured so that risks are clearly contained within the receiving credit union. Appropriate governance, due diligence, and contractual clarity would further help reduce the risk of unmanaged exposures. At the same time, they support the PRA’s secondary competition objective by enabling credit unions to broaden access to services that they cannot provide themselves, facilitating greater choice and collaboration within the sector. Proportionate safeguards would help to ensure that this expansion occurs in a sustainable and resilient manner.

Loan participation

3.4 This change enables NICUs to jointly fund or share the credit risk of loans to individuals or organisations, allowing them to offer larger loans while distributing the associated credit risk across participating firms.

3.5 The PRA’s proposals aim to ensure that, where NICUs choose to participate in such arrangements, the associated risks are appropriately identified, allocated and managed. In particular, the PRA is setting expectations around due diligence, clear legal structures, risk ownership, governance, limits, and provisioning to ensure that credit, operational, and concentration risks are controlled and that NICUs can participate in these arrangements in a safe and sound manner.

3.6 In addition, the PRA proposes to treat loan participation as an ‘additional activity’. Participating credit unions would therefore be subject to additional PRA rules and enhanced systems, controls, and governance expectations proportionate to the increased complexity and risk of these arrangements. The PRA has also clarified (by amending its rules and in proposed additions to SS2/23) that existing PRA rules on member lending limits and large exposures would apply to participation loans. The draft rules also include amendments to provisioning and capital requirements.

PRA objectives analysis

3.7 These changes support the PRA’s safety and soundness objective by ensuring that NICUs engaging in loan participation do so with clear risk ownership, robust governance, and appropriate controls, reducing the risk of losses, contagion, or unmanaged exposures that could threaten firm viability. They also support the PRA’s secondary competition objective by enabling NICUs to collaborate to provide larger or more complex loans than they could individually. This could broaden access to finance and support growth in the sector, while proportionate safeguards would help to ensure that this expansion does not undermine resilience or confidence.

Other proposals

3.8 Further consequential changes are proposed to PRA rules to reflect other legislative changes, including allowing NICUs to issue deferred shares. The changes would enable NICUs to provide wider products and services to their members including hire purchase, conditional sale agreements and insurance distribution activities. All of these changes are already permitted under GB legislation, and the PRA has applied existing rules and expectations to these activities where undertaken by NICUs.

3.9 One of the proposals in the DfE’s NICU Policy is to allow NICUs to invest in social projects, such as housing and other local government investment opportunities. The PRA acknowledges that the rules in Chapter 6 (Investments) of the Credit Union Part of the PRA Rulebook currently constrain a credit union from investing in funds used for these purposes. The PRA will engage further with the DfE in relation to its proposal and will consider this as part of the wider review of the credit union regulatory landscape, as referred to in the mutuals landscape report.

4: PRA objectives, cost benefit and ‘have regards’ analysis

The PRA’s primary objective

4.1 The PRA considers that these proposals would advance its primary objective of promoting the safety and soundness of PRA-authorised firms. The proposals would establish a prudential framework for managing the risks arising from new activities permitted under the planned Northern Ireland legislative reforms, including member referral arrangements and loan participation. By setting clear expectations for risk management, governance and oversight, the proposals are intended to support firms in undertaking these activities in a safe and sound manner.

The PRA’s secondary objectives

4.2 Secondary competition objective (SCO): The PRA considers that these proposals may support its SCO. By accommodating legislative changes that would enable NICUs to offer a broader range of products and services, the proposals may help credit unions compete more effectively with other providers and increase choice for members.

4.3 Secondary competitiveness and growth (SCGO): The PRA considers that these proposals may also support its SCGO. By enabling NICUs to operate with greater flexibility and pursue new business opportunities, the proposals may support innovation, sustainable growth and the long-term competitiveness of the sector. The proposals seek to achieve these benefits while maintaining appropriate prudential standards.

Significant factors to which the PRA has ‘had regard’

4.4 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 proportionality of regulation and recognition of differences between businesses: Across its proposals the PRA has placed significant weight on proportionality and recognition of differences in size and business model. The measures apply only where NICUs choose to undertake additional or more complex activities, with enhanced expectations triggered as risk increases. Smaller or less complex firms can avoid these additional requirements by not engaging in such activities. This approach ensures that regulatory burdens are aligned with the scale and nature of risks, rather than applied uniformly across the sector, and recognises the diversity of credit unions’ capabilities and operating models.
   
2. Growth and competitiveness: The proposals support growth and competitiveness in the financial services sector as already outlined. The proposed legislative changes enable NICUs to expand further into activities such as loan participation and member referral arrangements, supporting a broader product offering and increased operational flexibility. As set out in the DfE’s NICU Policy, this has the potential to improve access to finance and enhance the sector’s ability to compete, particularly for larger or more complex lending. The PRA’s policy proposals support these potential benefits by ensuring that activities are accompanied by appropriate safeguards, mitigating the risk that poorly managed expansion could undermine resilience and constrain sustainable growth.
3. Financial inclusion: The legislative changes may also support financial inclusion by enabling NICUs to better meet the needs of existing and potential members. In particular, the DfE proposals, which the PRA’s proposals support, could improve access to credit union services, broaden the range of products available to consumers and strengthen the ability of credit unions to serve their local communities.
   
4. Regulatory best practice and efficiency: The PRA’s approach also reflects principles of regulatory best practice, particularly transparency and clarity. By setting out detailed expectations in SSs, the PRA provides NICUs with a clear understanding of how it expects risks to be managed in the context of these new activities. While the proposals may increase regulatory requirements for some NICUs, this is targeted and proportionate to the risks introduced.

Cost benefit analysis (CBA)

4.5 This section sets out the expected costs and benefits of the proposals in this CP. The proposals primarily implement legislative changes and put in place new expectations for NICUs that choose to expand into new activities. Some of these activities, such as hire purchase and conditional sale are already undertaken by credit unions in Great Britain. However, there is insufficient data to robustly quantify the incremental compliance costs, particularly given uncertainty around firms’ take-up and business models in Northern Ireland. The PRA does not therefore consider it reasonably practicable to provide quantified estimates and has instead provided a qualitative assessment of the expected costs and benefits. The PRA’s Cost Benefit Analysis Panel was not consulted on the CBA, as the estimated annualised net direct cost of the proposals is expected to fall below the materiality threshold published in the statement of policy 4/24 – The PRA’s Approach to Cost Benefit Analysis, due to the limited scope and impact of the proposals.

Benefits

4.6 The proposals strengthen credit unions’ ability to identify, monitor and control risks associated with higher-risk or more complex activities. Enhanced expectations around governance, limits, due diligence and stress testing help ensure that credit, operational and concentration risks are properly understood and managed, reducing the likelihood of losses that could threaten firm viability.

4.7 While legislation provides for new activities such as loan participation and member referrals, the PRA framework establishes the necessary safeguards to ensure these are undertaken in a controlled and proportionate way and applies existing rules and expectations to other activities. This supports NICUs in expanding their business models while maintaining clear allocation of risk and responsibility across firms, helping to promote sustainable growth and reducing the likelihood that poorly managed expansion undermines resilience.

4.8 In particular, the PRA sets clear expectations on risk ownership – such as the receiving credit union bearing credit risk in referral arrangements and the originating credit union retaining the borrower relationship in participation structures. This clarity helps to reduce the risk of contagion between NICUs and supports the transparent and appropriate management of exposures.

Costs

4.9 The proposals are expected to result in some increase in compliance and operational costs for NICUs that choose to undertake these more complex activities. NICUs may need to enhance their policies, governance frameworks, risk analysis, stress testing, and monitoring arrangements, alongside developing internal expertise and systems over time. For smaller or less complex NICUs, this could represent a relatively greater uplift in capability and resourcing, although the extent will depend on the nature and scale of activities undertaken.

4.10 In practice, this may influence the extent to which some NICUs choose to participate, particularly where firms consider that the enhanced PRA expectations are not proportionate to their current scale or the anticipated benefits of undertaking more complex activities. The lending and leverage limits in PRA rules may also affect NICUs’ decisions. This may lead to a degree of self-selection. The PRA considers this is consistent with its objective of supporting firms to undertake more complex or higher-risk activities where they have developed appropriate capability and resilience, while allowing others to remain focused on simpler, lower risk business models.

5: Additional information

Consultation

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

5.2 None of the statutory practitioner panels were consulted about the proposals in this CP, given the proposals are in response to legislative changes.

5.3 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.

Impact on mutuals

5.4 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 in this CP 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

5.5 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.

Other factors to which the PRA has ‘had regard’

5.6 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 PRA has set out its views on the ‘have regards’ it considers significant in paragraph 4.4.

6: Responding to the consultation

Your personal information

6.1 By responding to the consultation, you share personal data with the Bank of England (including the PRA), which may include your name, contact details (including, if provided, details of the organisation you work for), and opinions or details offered in the response itself. For more information about how the PRA handles responses to PRA consultations see PRA consultations and discussion papers – your personal data. You have several rights under data protection laws in relation to data held about you. For further information on exercising these rights, including how to contact our Data Protection Officer, view our full privacy notice.

Responses

6.2 The PRA invites responses to the proposals set out in this consultation by Tuesday 12 January 2027.

6.3 Please indicate in your response if you believe any of the proposals in this CP 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.

6.4 The PRA will publish a general summary of responses to this consultation and is required to include respondents’ names if consent is given. When responding, please clearly indicate whether or not you consent to the PRA publishing your name, and/or the name of your organisation, as a respondent to this CP. Please make it clear if you are responding as an individual or on behalf of an organisation. Consent can be withheld or withdrawn at any time. If you wish to withdraw your consent to the PRA publishing your name, please contact the PRA using the contact details set out below. If you do not give consent to the PRA publishing your name, the PRA may still collect, record and store your response in accordance with the information provided above.

6.5 Please address any comments or enquiries to CP15_26@bankofengland.co.uk.