2 July 2002
NEW REGULATORY REGIME FOR CREDIT UNIONS
Credit Union members will be given similar protection to bank customers under new regulatory measures that come into effect today. The new arrangements will be overseen by the Financial Services Authority (FSA).
Ruth Kelly, Financial Secretary to the Treasury, said:
?Today's announcement is a milestone for the credit union movement. For the first time credit union members will receive a similar level of protection to that afforded to bank and building society customers.
?The Government believes that credit unions have an important role in tackling financial exclusion, encouraging saving and providing affordable credit. FSA regulation will allow credit unions to offer a wider range of services and compete more effectively for deposits.
?The Government received strong support from across the credit union movement for regulation by the FSA. There has been a wide-ranging consultation to ensure that the new regime is proportionate.?
Notes To Editors
1. There are 700 credit unions registered in Great Britain with more than 300,000 members and with assets of around £200 million.
2. The Treasury announced on 16 November 1999 that credit unions would come within the scope of FSA regulation under the Financial Services and Markets Act. The new regime, including credit unions' participation in the Financial Services Compensation Scheme and the Financial Ombudsman Service, came into effect today.
3. In October last year, the Treasury consulted on a number of deregulatory measures they were proposing to make under the Credit Unions Act 1979. Four of those proposals will come into effect today:
- credit unions will be able to borrow from a wider range of sources;
- they will be able to pay dividends at different rates and more often than once a year;
- members will be able to open joint accounts;
- the minimum coverage arrangements for fidelity bonds will change.
4. Three further changes are planned for later in the year by means of a Regulatory Reform Order as follows:
- more flexibility on common bond requirements;
- regulations governing the use of the name "Credit Union";
- permission for credit unions to make charges to cover the cost of ancillary services.
5. Key features of the FSA new regulatory regime are:
- Credit unions will have to meet a basic test of solvency. Additional capital requirements will be set for larger credit unions, reflecting their potentially greater impact on consumers should they fail;
- Credit unions will be required to maintain a minimum liquidity ratio;
- Key personnel running credit unions will have to meet the standards set out in the FSA's rules for Approved Persons;
- Credit unions will be required to operate an effective complaints scheme with members having access to the new Financial Ombudsman Service where they are not satisfied with the way their complaint has been handled;
- Credit unions will participate in the Financial Services Compensation Scheme providing members with deposit protection for the first time.
6. Credit unions are mutually owned financial co-operatives established under the Credit Unions Act 1979. The objects of a credit union are stated in the 1979 Act to be:
- the promotion of thrift among members;
- the creation of sources of credit for members at a fair and reasonable rate of interest;
- the use and control of members' savings for their mutual benefit;
- the training and education of members in the wise use of money and in the management of their financial affairs.
7. Members save by subscribing for non-transferable shares deposited with a credit union. Members may take out loans, at a maximum rate of interest of 1% per month and, for the majority, up to £5,000 in excess of their shareholding.
8. Membership is restricted to those who meet the qualification ('the common bond"), for a particular credit union. The common bond may be one of four main types: residence in a particular locality; being a member of, or have an association with, an organisation; working for a common employer or in a particular locality; and following a particular occupation. Many credit unions are largely run by unpaid volunteers, they provide basic savings and loan service to low income groups, who may well have no dealings with the commercial banking sector.
9. Media enquiries should be directed to HM Treasury press office, tel. 020 7270 4420.