PRA Proposes to Amend Capital Requirements Applicable to Credit Unions

PRA considers that there are improvements that could be made to the current regime, especially with respect to the barriers to expansion for the credit unions approaching the GBP 10 million asset or 15,000-member thresholds. There is also a concern that the link between capital and credit union membership size or activities creates a degree of complexity in the regime, where the risks posed by these factors could be addressed by other means. Another concern is that an earlier supervisory engagement with credit unions with capital ratios below 5% is more likely to facilitate a non-failure solution. The consultation aims to address these concerns and proposes the following changes:

• Provide a greater degree of flexibility and remove barriers to growth by replacing the current regime with a graduated rate approach and removing the 2% capital buffer, for credit unions with more than GBP 10 million of total assets: 
• Reduce complexity in the capital regime by removing the association between credit union activities/membership size and capital requirements and to address the risks posed by these factors by other means.
• Introduce changes to SS2/16 with respect to smaller credit unions. PRA is proposing to set new expectations in relation to credit unions with a capital to assets ratio in the 3% to 5% range, in which a credit union with a capital to assets ratio below 5% should be prepared to engage more fully with the PRA.
• Make additional, non-substantive changes to update the language and references in SS2/16. These changes would not change policy expectations and have not been marked up in the draft supervisory statement.

Related Links

• Notification
• CP28/19 (PDF)
• Speech

Comment Due Date: January 24, 2020

Effective Date: Date of Final Policy

Keywords: Europe, UK, Banking, PRA Rulebook, Credit Unions, SS 2/16, CP 29/19, Regulatory Capital, Proportionality, PRA