On 24 October 2019, the PRA published Consultation Paper 28/19: Credit unions – review of the capital regime (CP28/19). In CP28/19 the FCA sets out proposed changes to the capital requirements that apply to credit unions by amending the following documents:

  • The Credit Union Part of the PRA Rulebook; and
  • Supervisory Statement 2/16: The prudential regulation of credit unions (SS2/16).
  • The key proposed changes are:
  • for credit unions with more than £10 million 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 deadline for comments on CP28/19 is 24 January 2020.
  • On the same date, the PRA also published a speech by Sam Woods (CEO, PRA) which looks at the barriers to growth for small banks and credit unions. He argues that these barriers can arise as a result of complex regulatory rules and ‘cliff-edge’ thresholds. He also explains what the PRA is doing about them. During his speech, Mr Woods also launches the above PRA consultation on credit unions.
  • The PRA also proposes changes to SS2/16 relating to smaller credit unions. The PRA is proposing to 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.