WIREDGOV

The Financial Services Authority (FSA) has yesterday set out its proposals for strengthening the financial resilience of the credit union sector and ensuring that its customers are adequately protected.

The proposals aim to raise prudential standards in the sector, particularly on capital and liquidity. The proposed regime could also help ensure credit unions are prepared for the new government legislation allowing them to carry out a wider range of financial activities.

The main proposals are set out below:

• Introduction of a minimum capital to assets ratio of at least 3% for smaller credit unions;
• Higher initial start up capital for new credit unions - £10,000 for small start-ups and £50,000 for larger ones; and
• An increase in the minimum liquidity requirement to 10% of total liabilities for all credit unions.

These changes will be phased in over two to three years to give firms enough time to comply with any new rules.

Paul Sharma, FSA director of prudential policy, said:

"Our reforms for credit unions will ensure they are financially sounder, well managed with fewer failures and defaults. Raising the standards will also enable firms to be better placed to take advantage of the proposed legislative changes."

The FSA is also proposing to reduce the submission period for annual financial returns from seven to four months so that financial information received from credit unions is more timely and consistent.

Notes for editors

1. CP09/27: A review of the Credit Union Sourcebook.
2. In April 2009, Her Majesty's Treasury (HMT) published the conclusions of its review of the legislation governing the constitutional arrangements for credit unions in Great Britain. A legislative reform order (LRO) is due to be laid before Parliament shortly and if approved should come into effect in spring 2010.
3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.