FCA looks to boost growth of Credit Unions and Building Societies

A new report from the Financial Conduct Authority (FCA) looks to promote the growth of the mutuals sector, which includes customer or worker-owned organisations and credit unions. The FCA’s report offers a series of recommendations aimed at encouraging Credit Unions to expand and to offer more services.

Credit Unions serve 2 million members and hold £4.9 billion in assets and the Treasury plans to review the “common bond” governing such organisations. Ministers have also set aside £30 million to fund modernisation measures. However, campaigners warn that without action from mainstream banks, vulnerable consumers may continue to rely on loan sharks. Other measures designed to enhance the mutuals sector will see the Bank of England and the FCA simplify application processes and review regulations. The FCA’s new Mutual Societies Development Unit will provide support, making it easier for new mutuals to establish and existing ones to reduce costs.

The Building Societies Association (BSA) says that it welcomes the publication of the regulators’ Mutuals Landscape Report. The BSA says that for too long, the regulators have adopted a one-size-fits-all approach, with rules designed for large, diversified banks being applied to building societies without adjustments, despite their lower risk profile.

The new ‘Strong and Simple’ framework goes some way to address this imbalance for smaller societies, and we welcome today’s parallel announcement confirming that the Building Societies Sourcebook will be retired with immediate effect. The Sourcebook was excessively restrictive and anti-competitive towards the building society sector. Its removal allows societies to compete on a level playing field with banks, while staying focused on their principal purpose of using members’ savings balances to fund home ownership.

The BSA says that they are pleased that the PRA and FCA are providing feedback to the FRC on the costs and lack of availability of PIE auditors and how this acts as a barrier to growth. Building societies and credit unions are not driven by short-term shareholder profits, which means they can take a long-term, and more balanced approach to risk. Research shows that a diverse mix of financial business models promotes financial stability and resilience to financial shocks.²  The BSA now calls on regulators to publish metrics monitoring business model diversity, demonstrating how it is considered in policy development, supervisory actions and how the Bank of England’s Financial Policy Committee (FPC) factors this into its assessment of financial stability of the UK.

Ruth Doubleday, Head of Prudential Regulation at the Building Societies Association said “The publication of the Mutuals Landscape Report and the retirement of the Building Societies Sourcebook mark the beginning of a new era of more proportionate regulation, whether relating to a firm’s size or business model type.

“Mutuals are vital for a competitive financial services market, offering better rates for savers and borrowers and providing a stable, long-term approach that benefits the wider economy. This report is a great reminder that when regulation recognises different business models, consumers, communities and the financial system all benefit.”