The FSA to develop practical regulation for credit unions

Howard Davies, chairman of the FSA, said:

"The FSA will develop a practical system for the regulation and supervision of credit unions - taking account of their special characteristics - which will be put in place after the Bill is enacted.

"This will put credit union members in a similar position to other financial services customers in terms of the benefits of proportionate regulation and the protection offered by the FSA''s compensation scheme. This should provide a positive environment in which the movement can develop further by strengthening the confidence of members and the general public that money placed with a credit union is suitably protected.

"The FSA''s supervisory regime for credit unions will be based on an assessment of the risks associated with the business and controls of credit unions - in line with its general approach that supervision should be proportional to the risks carried by different types of financial organisation and the varying controls they have in place. We will have regard to the particular nature of credit unions which are mainly run by volunteers and which provide services only to their members. The FSA will work closely with the credit union movement to develop a regime which meets the needs of credit unions and their members."

Currently the Government meets about 90% of the cost to the Registry of Friendly Societies of the Registrys supervision and registration of credit unions. But in future the FSA will be required by law to recover its full costs from those whom it regulates. Most credit unions will not for some time be in a position to meet such costs and the FSA will discuss with other financial institutions how they might help in this regard. The FSA will consult widely on a fees and charges structure for credit unions before this is implemented. The Government has indicated that it hopes the financial industry will respond positively and constructively to these discussions.

Notes for editors

The Treasury announced today that credit union regulation would be placed on a statutory basis under the Financial Services and Markets Bill. It also announced the implementation of a deregulation package for credit unions. The Treasury also published today a Policy Action Team Report "Access to Financial Services" which examines ways in which an expanding and healthy credit union movement can help to tackle financial exclusion.

The Financial Services and Markets Bill received its Second Reading in the House of Commons on 28 June and is expected to become law during the first half of 2000.

Credit unions are currently registered by the Registry of Friendly Societies and are supervised on a non-statutory basis by FSA staff under contract to the Chief Registrar of Friendly Societies. They pay fees for registration but their supervision is currently free of charge.