Proposed New Credit Union Sourcebook (CREDS 2)

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The PRA and FCA have launched a major consultation on a proposed new version of the Credit Union Sourcebook (CREDS). This will impact all aspects of your business and we therefore strongly recommend you review the consultation paper (PRA CP22/15 FCA CP15/21).

The main changes are within the PRA’s proposals. These include:

  • Limit on members’ savings up to the limit of protection under the Financial Services Compensation Scheme.
  • General bad debt provision requirements will disappear but you must apply the 60% and 80% provisions for loans over 6 months and 9 months in arrears.
  • Certain requirements must be met before you can offer payment services.
  • Liquidity ratio requirement will be 10% at all times.
  • Credit Unions with over 10,000 members or £10 million assets must meet a 10% capital to asset ratio.

Under the new proposals the concept of a version 2 Credit Union under the PRA’s rules will disappear. Instead of Credit Unions requiring version 2 status to offer higher loans or mortgages you will instead need to meet certain capital criteria. The specified services requiring additional criteria are:

  • Mortgage lending
  • Credit Union holding some of the wider investments permitted under the proposals
  • Credit Union lending larger amounts or for longer period of time
  • Payment services provider

This does mean that potentially current version 2 status credit unions may lose their ability to offer particular services. In addition they may also:

  • Lose ability to borrow higher amounts.
  • Have greater restrictions on their lending
  • Have increased capital requirements.

The FCA is also proposing changes to its version of the Credit Union Sourcebook. These changes are mainly to update provisions, clarify the FCA’s responsibilities and change some current guidance into rules. In addition, they are introducing the requirement that a copy of the audited accounts be sent to the FCA as well as the PRA.

For a full list of changes to CREDS and all the details please see the consultation paper. Please note that the consultation closes on 30 September 2015.

For our clients we have prepared a summary highlighting the main proposals from the PRA which will be available in the next blog.