UK regulators explore capital and growth reforms for credit unions

What happened

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published a discussion paper on 3 November exploring changes to the UK credit union framework. The regulators want feedback on whether rules remain proportionate as the sector evolves.

For smaller credit unions, options include removing some internal audit and regulatory document requirements. Larger, more complex firms could move to a risk-based framework with more flexible capital requirements.

The paper explores replacing the current simple leverage ratio with relevant rules for smaller deposit takers, including the standardised approach to risk-weighted assets. Other possibilities include a simplified Basel framework, streamlined capital add-ons for large credit unions with specific exposures, and a simple buffer to absorb shocks during periods of stress.

Why it matters

Credit unions are member-owned institutions that typically provide savings and personal loans within an occupation, community or area. They have more than two million members in the UK, according to the announcement.

The review addresses both regulatory costs and the capacity to offer new services. The regulators are seeking views on barriers to product development and how shared-service and third-party organisations can support investment, technology and operational capability. Additional guidance on the FCA’s expectations for important outsourced services is also under consideration.

Possible changes to FCA fees could reduce regulatory costs. A proposed path for conversion into building societies could give credit unions access to a framework more tailored to specific lending and a wider range of funding tools.

Context / What to watch

The discussion builds on the regulators’ joint 2025 Mutuals Landscape report. It also covers changes to solvent-exit arrangements that could allow greater flexibility to transfer business or restructure in an orderly manner.

These are options for discussion, not adopted rules. The PRA and FCA are inviting firms to comment on the ideas and suggest alternatives, recognising differences in business models, growth trajectories and risk profiles.