CREDIT UNIONS need new rules to reflect the broader range of financial services offered by the local loan and savings organisations, the Bank of England said.
The Prudential Regulation Authority (PRA) published proposals to reform regulation of credit unions, which are being promoted by policymakers and the Church of England as a viable alternative to costly pay-day lenders and a banking sector tarnished by scandals and the financial crisis.
The PRA, which supervises lenders and insurers, proposed the removal of existing rigid restrictions to give boards of credit unions more freedom to decide how their businesses are run.
“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,” Deputy Governor Andrew Bailey.
The 50-year-old credit union movement has typically served the less well off in society but is now revamping itself to attract a wider range of customers by offering accounts, mortgages and savings products.
The Ggovernment has allocated £38m to support the sector’s expansion and boost competition in a banking industry dominated by the Big Four of HSBC, Barclays, Lloyds and RBS.
The Association of British Credit Unions’ website says there were 362 credit unions serving 1.2m customers by the end of last year.
Loans totalled £718m with deposits of £1bn, still tiny compared with the Big Four.
A key aim of the PRA’s proposals is to give consumers confidence that they will not lose their money if a credit union fails.