On 15 October 2021, the PRA issued their annual feedback letter to Credit Unions. There were two versions of the letter. One version is for Credit Unions with under £15m of assets and less 10,000 members and the other is for larger Credit Unions. Some of the key points raised are outlined below:
Single Customer View
Credit Unions were asked to consider the following in their SCV policies:
- Can the SCV file be produced in the correct format with all the required fields
- Is the Credit Union able to submit the SCV without an input from a third party and within the 24hour time limit
- Does the CU have documented SCV policy/procedures to ensure accuracy and consistency, and to minimise the reliance for submission on key individuals?
- Does the CU compare its SCV file to other management information, databases, and returns?
- How often does the CU review its members’ details?
- How does it test their accuracy?
- Is SCV included in the supervisor/IA review?
The PRA also highlighted common missing information from SCV as well as reminding Credit Unions that they can use the self verification portal to test their data.
Credit Risk
Interestingly while the letter to large Credit Unions states that arrears for this group have been improving, the letter to small Credit Unions states there has been a 11% increase in arrears for this group.
The PRA urged Credit Unions to continue to monitor bad debts and their loan book for any deterioration. Scenario testing should also be carried out to help Credit Unions plan for this risk. The PRA also stated that where you intend to expand the loan product through new products and technology you should consider the different risks and skills required and ensure appropriate resources are in place.
Cyber
The PRA are getting many reports of cyber attacks on Credit Unions. The PRA letters sets out a number of considerations that Credit Union should consider in relation to these threats.
Capital
The need for scenario analysis was also highlighted in relation to capital with its importance to help warn of any future capital issues.
Other Matters
- The letter to smaller Credit Unions highlights that where regulatory returns are not made to the regulator on time then that Credit Union is unlikely to be able to demonstrate to the Board it has an effective Board and is operating prudently.
- The difficulty of recruiting new Board Members during the pandemic was highlighted. The PRA did state though that some Credit Unions have used the pandemic to identify skills gaps and improve governance.
- The PRA also emphasised the need to keep Regulators informed where there are any issues or major changes in the Credit Union.
- Operational resilience and outsourcing were also covered within the letters.
Credit Unions should review the full letters which can be found by clicking here.