On 3 November 2026, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) (the Regulators) published a joint discussion paper in relation to credit unions supporting sustainable growth and resilience (DP2/26).

Background

In the mutuals landscape report, the Regulators committed to working with the sector to review the current position and future trajectory of the credit union sector.

The Regulators set out that DP2/26 forms part of that commitment and considers whether the existing regulatory and legislative framework remains fit for purpose to support the growth of the sector.

Summary

The Regulators set out the following points for consideration, in particular:

  • Delivering proportionate prudential regulation: Whether the prudential framework remains proportionate as credit unions become more diverse. For small, simple firms, it explores simplifying prescribed documentation, internal audit and reporting while retaining core safeguards. It also considers rationalising asset-based capital thresholds to reduce cliff edges. For larger or more complex firms, options include higher leverage requirements, a more risk-sensitive capital regime drawing on the Small Domestic Deposit Taker framework or facilitating conversion to building society status. The central trade-off is between simplicity, compliance cost, risk sensitivity, and resilience.
  • Competition, innovation and long-term sustainability: The Regulators consider how regulation can support sustainable growth and innovation without creating undue risk. Key areas include barriers to using newly permitted activities, greater use of Credit Union Service Organisations to share resources and capabilities and potentially allowing investment in social housing or other social-purpose funds. The Regulators also consider whether reducing certain regulatory fees could support growth and whether there are other regulatory barriers to competition and innovation.
  • Ensuring consumer confidence and protection: The Regulators focus on ensuring that governance and risk management develop alongside growth. Particular concerns include rapid or aggregator-driven growth, mortgage and fixed-rate lending, and increasing reliance on third-party providers. Potential measures include stronger governance and stress testing, additional safeguards for mortgage lending, permitting derivatives for limited risk-management purposes and enhanced expectations for outsourcing. The Regulators also consider how regulatory requirements and communications could be made clearer and more accessible.
  • Facilitating orderly market exit: The Regulators consider whether credit unions have adequate options to exit without unnecessary disruption to members. They explore barriers to solvent exit, restructuring and transfers, particularly where firms hold longer-term assets such as mortgages. They also seek views on allowing loan books and exhausted non-performing loans to be transferred to non-credit-union entities, subject to safeguards protecting members.