Bank consulting on a new framework to bolster credit unions.
The Bank of England’s Prudential Regulatory Authority (PRA) is consulting on ways to give credit unions more powers.
It wants to revise ‘rigid restrictions’ that credit unions are bound by and introduce a more flexible framework based on how they want to serve their local communities.
Credit unions
A credit union is a form of co-operative set up to benefit a particular group or community that share a common bond. For example they may have the same occupation or live in the same area.
They allow members to save money and take out manageable loans. Some offer current accounts.
Credit unions can act as a lifeline to those shunned by traditional banks and are an alternative to expensive short-term borrowing with payday loan companies.
According to the Association of British Credit Unions Limited (ABCUL) there are 362 credit unions operating in the UK. But their success is limited. Just 3% of the population in the UK use a credit union compared to 30% in Australia, 43% in Canada, 46% in the USA and 75% in Ireland.
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Greater flexibility and new standards
[SPOTLIGHT]The PRA wants to reform the way credit unions are regulated, giving them more flexibility around investments, capital levels and reporting requirements.
The PRA also wants to increase confidence in the schemes, especially their ability to pay out to depositors.
Under the plans, deposits will be capped at £85,000 per member, which is the maximum amount the Financial Services Compensation Scheme will cover if an institution like a credit union goes bust.
Andrew Bailey, head of the PRA, explained: "These changes will introduce a more risk-based and flexible regime for credit unions, with prudential standards that reflect the diverse business models they now operate. The new rules will raise standards where required."
The consultation closes on 30th September 2015.
Finding a credit union
You can find your local credit union using the Association of British Credit Unions website findyourcreditunion.co.uk.
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