The PRA and FCA have opened a review of how credit unions are regulated. Their joint discussion paper, published on 3 November 2026 as PRA DP2/26 and FCA DP26/1, asks whether the current framework still fits a sector that ranges from small community lenders to credit unions offering mortgages. The regulators are not proposing policy yet. They want views by 5 March 2027 on options that would lighten the load on smaller credit unions, strengthen it for the largest, and open new routes to grow, convert or exit.
The sector in numbers
The regulators jointly supervise around 340 UK credit unions, serving more than two million members and holding around £4.9 billion of assets. Most remain small and simple, offering savings and personal loans to members who share a common bond such as an area, an employer or an association. But legislative change, consolidation and common bond reform have produced some larger and more complex firms. The Financial Services and Markets Act 2023 widened what credit unions in Great Britain can offer, including hire purchase, conditional sale and insurance distribution, and in February 2026 the PRA allowed credit unions to invest in credit union service organisations (CUSOs).
The current capital framework
Credit unions today hold capital against total assets using a simple ratio that rises with size.
| Total assets | Minimum capital-to-assets ratio |
|---|---|
| Under £5 million | 3% |
| £5 million to £10 million | 5% |
| Over £10 million | 5% of the first £10 million, 8% of assets above £10 million |
| Over £50 million | 10% of assets above £50 million |
Credit unions with total assets above £100 million already have to plan for solvent exit under the PRA's supervisory statement SS2/23. Most credit unions, below that size, have no recovery or solvent exit planning requirements.
Options for smaller credit unions
For small and simple credit unions that intend to stay that way, the PRA sees room to cut requirements. The paper floats a package for those with total assets under £10 million:
- a common 5% capital ratio for all credit unions under £10 million, replacing the 3% level for those under £5 million;
- simplifying or removing some prescribed documentation;
- replacing certain internal audit requirements with broader assurance expectations.
The trade-off is explicit. The higher capital floor for the smallest firms would come with lighter process rules. Credit unions that plan to grow, widen their common bond or add new products are expected to strengthen risk management to match.
Options for the largest credit unions
At the other end, the regulators are concerned about rapid growth without matching risk management, particularly where credit unions take on mortgages and fixed-rate lending funded by withdrawable shares.
| Option | What it would mean |
|---|---|
| Keep the leverage framework with stronger safeguards | For example a 15% capital ratio on assets above £300 million, and fewer thresholds overall |
| Risk-based capital regime | Apply parts of the small domestic deposit taker (SDDT) rules, including the standardised approach to risk-weighted assets, a simplified Basel framework and a single capital buffer |
| Liquidity rules | Possible elements of the SDDT liquidity framework where maturity transformation risk is higher |
| Risk management expectations | Limits on mortgage concentrations and higher-risk lending such as 100% loan to value, designated senior manager accountability and expected-loss provisioning |
| Building society conversion | A route for credit unions whose size and activities resemble a building society, with access to the Bank of England's Sterling Monetary Framework subject to eligibility |
The SDDT route has drawbacks the regulators acknowledge: it imports much of the Basel 3.1 Pillar 1 framework, which was not designed for credit union risks.
Growth, products and third parties
The Financial Services and Markets Act 2023 let credit unions in Great Britain offer hire purchase, conditional sale and insurance distribution, and the FCA updated CREDS 10 to match. Yet the FCA understands that credit unions in Great Britain, small and large, have yet to take up these activities. The paper asks why: regulatory requirements, operational challenges, lack of demand or something else.
CUSOs are a large part of the answer the regulators are exploring. A CUSO is a company jointly owned by two or more credit unions that provides shared services, from technology to lending operations, so that each credit union can access capabilities it could not afford alone. Since the PRA's PS5/26 in February 2026, credit unions may invest in CUSOs within safeguards. Depending on what it does, a CUSO may itself need FCA authorisation, and each credit union must oversee it like any other outsourcing.
The paper also asks how CUSOs and other third parties can provide investment, technology and operational support. The FCA asks whether CREDS, its sourcebook for credit unions, should include more guidance on oversight of third-party and outsourcing arrangements, and whether changes to FCA fees would support sustainable growth. Responsibility for governance, systems and controls stays with the credit union's board and senior management, whatever is outsourced.
Social housing investment and fees
The PRA is also exploring whether credit unions should be allowed to invest in social housing funds. Northern Ireland's Department for the Economy published a Credit Unions (Amendment) Bill on 19 October 2026 that would let Northern Ireland credit unions use surplus funds for social or charitable purposes and, working with the PRA, invest collectively in social projects such as housing, as credit unions in the Republic of Ireland can. The PRA's current investment rules do not allow it. Any change would need safeguards: limits on eligible funds and concentrations, liquidity rules, due diligence and valuation standards and proportionate governance, because such funds can be long-term and illiquid.
On costs, the FCA is considering whether to reduce fees for credit unions, such as authorisation fees linked to deposit-taking, to support growth. Any change would be consulted on separately as part of a wider review of FCA fees and funding.
Orderly exit
The regulators want credit unions to be able to leave the market without disruption to members. The paper explores more flexibility to transfer business or restructure in an orderly way, and whether solvent exit planning should extend beyond the largest firms. For members, the aim is continuity of savings and loans if a credit union cannot continue.
What it could mean for different credit unions
The options would affect credit unions differently depending on size and plans.
| Credit union profile | Most relevant options | Points to weigh |
|---|---|---|
| Small community credit union, under £5 million, no growth plans | Common 5% capital ratio; lighter documentation and audit | Higher capital floor against lower process cost |
| Credit union between £5 million and £10 million | Lighter documentation and audit; no change to the 5% ratio | Whether the simplified package fits its plans |
| Growing credit union widening its common bond | Risk management expectations; third-party guidance | Systems, staff and controls to match growth |
| Large credit union with mortgage lending | 15% ratio above £300 million or a risk-based regime; liquidity and concentration limits | Capital planning, provisioning and senior accountability |
| Credit union resembling a building society | Conversion route | Access to central bank facilities against a fuller prudential framework |
Questions the regulators want answered
The paper sets out specific questions. Among the most important for firms to answer with evidence:
- whether the current capital thresholds still fit the sector, and what a simpler package for smaller credit unions should contain;
- which risk-based approach would suit larger credit unions, and what it would cost to implement;
- what stops credit unions offering new products, including through CUSOs and other third parties;
- whether the FCA should add guidance to CREDS on outsourcing and third-party arrangements, and which areas would help most;
- whether changes to FCA fees could reduce costs and support growth, and any risks in doing so;
- how solvent exit and transfers of business could be made more flexible.
Responses with numbers, such as the cost of current internal audit requirements or the capital effect of each option, will carry more weight than general support or opposition.
What credit unions should do
- Respond by 5 March 2027. The regulators want evidence on costs, barriers and the effect of each option on firms with different business models. Send responses to DP2_26@bankofengland.co.uk.
- Run the numbers. Model your capital under each option, especially the 5% floor for smaller firms and the 15% or risk-based options for larger ones.
- Review growth plans. Mortgage, fixed-rate and new product plans may face new expectations on concentration limits, provisioning and accountability.
- Map third-party arrangements. Document oversight of CUSOs and service providers against CREDS and SYSC 8.
- Consider structure. For the largest credit unions, assess whether building society conversion could suit the business.
Credit unions also face the same consumer credit conduct rules as other lenders, including the Consumer Duty and affordability rules. Our guides to the Consumer Duty for consumer credit firms and consumer credit compliance under CONC cover them, and our consumer credit practice supports firms through regulatory change.