The Bank of England has launched a discussion paper to review the regulatory framework for credit unions in the UK, aiming to ensure it supports sustainable growth and resilience. Credit unions, which serve over two million members and hold £4.9 billion in assets, have evolved significantly with diverse business models and increasing complexity. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) are assessing whether the current framework remains fit for purpose, particularly for smaller and larger credit unions.
The regulators are seeking views on six key outcomes: proportionate regulation, consumer confidence and protection, effective competition and innovation, long-term sustainability, operational resilience and risk management, and orderly market exit. They recognize that measures to support growth may impact resilience and consumer confidence, and vice versa. The discussion paper explores whether the current prudential framework is appropriate for the sector's diversity and whether it supports competition, innovation, and long-term sustainability.
The regulators are also considering potential barriers to growth, the use of Credit Union Service Organisations (CUSOs), and factors constraining the adoption of newly permitted activities. They acknowledge that growth and innovation may introduce new risks, and the paper examines whether the current framework provides adequate safeguards in areas such as governance, risk management, mortgages, and rapid growth.
Additionally, the discussion paper considers whether credit unions have the necessary tools for an orderly market exit, minimizing disruption to members. The regulators are not proposing policy changes at this stage but seek feedback by Friday, March 5, 2027, to inform future reviews of the credit union regulatory framework.