Credit Unions classed as category 5 by the PRA are assessed annually by the regulator based on a peer group review. Following the completion of the 2013 review, the PRA has written to all category 5 Credit Unions. These Credit Unions received one of two standard letters depending on whether they were deemed to be on track to comply with the enhanced capital requirements.
The letters suggest that the PRA is looking at more Credit Unions to close or merge. In their letter, to credit unions who are passing the requirements, they have asked them to consider how they can support their fellow Credit Unions through either sharing knowledge or by merging.
In the other standard letter the PRA have stated that where Credit Unions are deemed not capable of meeting their obligations then they will take “appropriate regulatory action to resolve the situation; where there is no acceptable alternative this will mean credit union closure”. They have asked those Credit Unions, deemed to be likely to fail to meet the requirements, to consider:
- bidding for funding and taking steps to increase income and reduce expenditure
- approaching trade body or other Credit Union for guidance and support.
- merging with another credit union
- effecting a solvent winding down
The Regulator’s comments therefore suggest that they are anticipating more closures and looking to encourage mergers.
The PRA also found that in some Credit Unions:
- there were issues with corporate governance;
- strategic planning including business plans was not appropriate or up to date;
- management information was of poor quality or inadequate;
- records were not being sufficient to ensure compliance with the Single Customer View (SCV) requirements.
We are aware that a number of Credit Union have not received their letters from the PRA and FCA setting out their risk category. If you are in this position then you should contact the appropriate regulator as soon as possible.