PRA Consult on Changing Capital Requirements

The PRA have launched a consultation on changing the capital requirements for Credit Unions. 

Large and Growing Credit Unions

The current capital requirements have restricted the growth of a number of Credit Unions. When  Credit Unions currently hit £10million in assets their capital requirements double which is a major barrier to growth. Many Credit Unions have had to impose restrictions on shares to meet their capital requirements.

The PRA are now proposing a reduction of the capital requirements for large Credit Unions. Credit Unions would be required to hold 5% capital for the first £10million of assets and then 8% capital for assets between £10m and £50m and 10% capital for assets over £50million. Under the new proposals the capital buffer would no longer apply. This would have a major impact on the capital requirements for Credit Unions when they reach the £10 million barrier as the requirements would no longer double overnight.

In addition, the PRA are proposing to remove the link between capital requirements for additional activities and membership numbers. Credit Unions with over 15,000 members will be required to meet the same requirements as Credit Unions carrying out additional activities under the new proposals.

Smaller Credit Unions

While they plan to maintain the 3% capital requirements for Credit Unions with assets of less than £5m they intend to introduce monitoring for Credit Unions with capital between 3%-5%. Credit Unions in this band will be expected to engage more with the regulator regarding their sustainability and ability to budget and business plans. 

Transfer to Reserves

The PRA is proposing to retain the requirements that require transfer of surpluses to reserves where capital ratios are below 10% (and prevent transfers from reserves where capital ratios are below 10%). This will impact how Credit Unions can utilise the reduced capital requirements.

Further Information

The consultation closes on 24 January 2020.The consultation can be found at https://www.bankofengland.co.uk/prudential-regulation/publication/2019/credit-unions-review-of-the-capital-regime

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