FSA has solid mandate for new regulatory regime

Michael Foot will say:

"The new standards and requirements we have set out are flexible and proportionate to the circumstances of credit unions. They are designed to allow the movement to advance while giving greater protection to members, including access to the Financial Services Compensation Scheme.

These factors should make saving with a credit union more attractive to a wider range of consumers; and higher savings will give credit unions a stronger platform from which to enhance and increase the range of services they can provide to the people they serve.

"It's just over two and half years since the Government asked us to regulate credit unions. It has taken a lot of hard work on everyones part to create the practical regime that is about to come in. We have been greatly helped by the record feedback we have had to our consultation process from the trade associations, from many individual credit unions and from a range of other organisations and people who have an interest in the movement. I am glad to say that the responses have been overwhelmingly supportive, which we believe gives us a solid mandate to implement our proposals. We could not have achieved what we have without all this help, and we are very grateful for it.

I expect the new regime to achieve its aim of improving confidence in the financial soundness of credit unions, and to provide the positive environment the movement needs in order to grow and pursue its objectives. We have tried to provide the right framework - the movement now has the chance to utilise it to the full"

Notes for editors

1. Michael Foot was addressing a reception at the House of Commons co-hosted with the All Party Group for building societies and financial mutuals to mark Credit Unions Day on 2 July when the FSA starts its regulation of the sector under the Financial Services and Markets Act.

2. Key features of the FSA new regulatory regime are:

   • Credit unions will have to meet a basic test of solvency. Additional capital requirements will be set for larger credit unions, reflecting their potentially greater impact on consumers should they fail;

   • Credit unions will be required to maintain a minimum liquidity ratio;

   • Key personnel running credit unions will have to meet the standards set out in the FSAs rules for Approved Persons;

   • Credit unions will be required to operate an effective complaints scheme with members having access to the new Financial Ombudsman Service where they are not satisfied with the way their complaint has been handled;

   • Credit unions will participate in the Financial Services Compensation Scheme providing members with deposit protection for the first time.

3. The Treasury announced on 16 November 1999 that credit unions would come within the scope of FSA regulation under the Financial Services and Markets Act. The new regime, including credit unions' participation in the Financial Services Compensation Scheme and the Financial Ombudsman Service, is due to come into effect from 2 July 2002.

4. Credit unions are mutually owned financial co-operatives established under the Credit Unions Act 1979. The objects of a credit union are stated in the 1979 Act to be:

   • the promotion of thrift among members

   • the creation of sources of credit for members at a fair and reasonable rate of interest

   • the use and control of members savings for their mutual benefit

   • the training and education of members in the wise use of money and in the management of their financial affairs.

5. There are 700 credit unions registered in Great Britain with more than 300,000 members and with assets of around 200 million.

6. On 1 December 2001 responsibility for registration and supervision of credit unions passed from the Chief Registrar to the FSA. Until the new FSA regime based on the Credit Union Sourcebook comes into effect on 2 July 2002, the FSA has been regulating credit unions in line with the former Chief Registrar powers.

7. 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; the protection of consumers; and fighting financial crime.

8. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.