We welcome the Prudential Regulation Authority’s (PRA) intention to clarify the regulatory framework around credit union service organisations (CUSOs) and are grateful for the opportunity to respond to this consultation. We agree that CUSOs have an important role in supporting the resilient delivery of financial services by credit unions and in facilitating their growth, and we note that they are an important feature of other jurisdictions where the credit union sector is larger, such as the USA.
However, we don’t believe that these proposals deliver the changes needed to support the development of CUSOs in the UK. In a market that is so undeveloped, CUSOs will need significant investment to get off the ground, and we therefore have a number of concerns:
- Ownership and structure – the proposed definition that CUSOs are exclusively owned by and operated for credit unions will limit opportunities for external investment and broader partnerships
- Investment cap – the 5% investment cap per credit union is too restrictive and would require challenging levels of coordination between credit unions to pool enough investment to get CUSOs underway and then scaled
- External capital – CUSOs will almost certainly require external capital to get started, but the options for external investment in credit unions are poor and very unappealing to investors. We believe the PRA should use this consultation as an opportunity to review the existing credit union investment menu, which has led to suboptimal alternative arrangements that have delivered poor outcomes.
We believe it is crucial to get these proposals right. Credit unions provide essential access to credit and savings to millions of members across the country, including many who would be financially excluded otherwise. Supporting the growth of the sector will be an essential enabler of the government’s upcoming Financial Inclusion Strategy, as well as helping to achieve its goal of doubling the size of the mutuals sector.
Given the boost that CUSOs could provide to these missions, we would welcome the opportunity to engage further with the PRA on what more could be done to support the development of CUSOs.
