UK PRA and FCA open discussion on credit union capital rules, growth safeguards and market exit

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have published a discussion paper exploring simpler requirements for small credit unions and stronger prudential safeguards for larger or more complex firms. It advances the credit union review promised in their December 2025 mutuals landscape report as growth and diversification challenge a framework originally designed for small institutions offering simple products. No policy changes are proposed or committed to at this stage. For small, simple credit unions, one possible package would combine reduced documentation, internal audit and reporting burdens with a common 5% leverage ratio for firms below GBP 10 million in assets. This would replace the current 3% requirement for those below GBP 5 million. For larger or more complex firms, alternatives include raising capital requirements from 10% to 15% on assets above GBP 300 million or introducing capital requirements that more closely reflect risk, potentially through parts or all of the Small Domestic Deposit Taker regime. A pathway to building society status is another option, but would require legislative change. These alternatives involve different trade-offs between simplicity, capital strength and compliance costs. The review also examines barriers to adopting newly permitted activities and whether shared service arrangements need clearer oversight. Potential safeguards address rapid growth through aggregators and mortgage lending risks. One option would permit derivatives solely for risk management, subject to PRA approval and evidence of adequate capability. On orderly exit, the paper explores easing restrictions that limit business transfers to credit unions with the same or overlapping common bond, alongside allowing sales of nonperforming loans to entities outside the sector after recovery actions are exhausted. Changes to loan sales may require legislation within HM Treasury’s remit and would need safeguards for affected borrowers.