HM Treasury - Credit unions at 50: a call for evidence
ABCUL’s response to this Call for Evidence is based on the findings of a survey of ABCUL members which took place during the course of the consultation period and attracted 52 responses (22% of ABCUL members) representing a good cross-section of the credit union movement. Furthermore it builds upon the insights of ABCUL’s work over many years and in partnership with a range of stakeholders and the international credit union sector in developing a Blueprint for Development based on four successive stages: enabling legislation and proportionate regulation; sound governance and strong management; sustainable business models, products and services and; appropriate investment.
Our key policy recommendations in response to this Call for Evidence are:
Enabling legislation and proportionate regulation
- Clarify the credit union objects and powers
- Introduce resolution procedures for failing credit unions
- Address the indirect impact of banking regulation on credit unions’ access to banking
- Acknowledge credit unions in personal insolvency
Sound governance and strong management
- Encourage financial services corporate volunteering and expertise sharing
- Provide investment in training and development resources
Sustainable business models, products and services
- Continue to encourage and support collaboration between credit unions
- Encourage payroll deductions and links to employers
- Provide better access to payment services, and commercial and agency banking
- Provide better access to credit data
- Support collaboration and shared business models
- Encourage capital investment to boost balance sheets
- Explore the potential for social investment in credit unions
Our detailed response to the consultation questions also highlights the following areas:
- We recommend the clarification of the Credit Unions Act to allow credit unions to utilise and dispose of property and other assets in support of its core business.
- In general we feel the process for setting up a new credit union strikes the right balance.
- We recommend that creation of a new 2-stage approval process is considered to allow credit unions to have some legal status prior to full authorisation to enable it to put in place necessary resourcing and other contracts.
- In general we do not feel that the common bond as currently constructed presents a significant barrier to credit union growth and development. Since it holds great importance for retaining credit unions’ regulatory position we recommend it is not liberalised any further.
- We recommend some clarificatory guidance as to what exceptional circumstances may be deemed appropriate for the breach of the 2 million potential membership limit.
- We recommend that legislation be amended to allow family members not resident at the same address as the qualifying member to be allowed to join a credit union on the basis of familial ties alone.
- We recommend that government looks to address the newly-identified clash between several faith and ethnicity-based common bonds and the Equalities Act 2010.
- We recommend that FCA provides clearer guidance on, and more robust objective assessment of, common bonds to ensure that the requirements surrounding legitimate common bonds are applied consistently.
- In relation to business lending, we feel that expertise and appropriate products and services are the main barriers for the sector to overcome. We recommend government invests in credit union training and development to assist them in exploring the opportunities in this market.
- We recommend that the consideration be given to allowing boards to change specific rules where they have sought and gained strictly limited powers to adjust a rule at a previous general meeting of the members.
- Government’s own messaging should seek to promote a message on credit unions serving a range of members, not exclusively the over-indebted or excluded.
- Government should also encourage investors in credit unions to do so via capital investment rather than revenue support in order to drive the right behaviours.
- Support from wider society should seek to align with existing initiatives and avoid duplication or inconsistency.
- We recommend that government support the resolution of failing credit unions in three ways:
- The introduction of a power for PRA to enforce merger where a credit union is failing
- The creation of a government-sponsored stabilisation fund to turn around failing credit unions
- Provision for FSCS to have bail-in resolution powers under Part 2 of the Banking Act 2009 for credit union resolution
- We recommend that the board and management of “resolved” failing credit unions be removed under stabilisation or FSCS intervention and that stringent monitoring and a robust business plan be minimum requirements.
- We do not believe government needs to take action to assist voluntary merger which is an option that is not unduly difficult to pursue at present.
- Collaborative solutions to questions of scale should be the primary focus rather than government-encouraged merger.
- Longer term government support for credit unions should consider:
- mechanisms for the facilitation of the securitisation of credit union mortgage and other assets
- credit union access to central bank facilities as a direct participant
- assist with capital and social investment in credit unions, with the potential for the need for new capital instruments over the long term.
Priorities for government
While the long-term development of the credit union sector depends upon action in all of the above areas, we feel that the most pressing areas for credit union development at this stage and which government should prioritise are:
- the clarification of credit union objects and powers to future-proof the legislation;
- training and development investment to ensure credit unions have the appropriate leadership and skills to move to the next level;
- the introduction of resolutions procedures to facilitate the orderly rationalisation of the sector in a period of transformation and growth;
- the acknowledgement of credit union’s position in personal insolvency to ensure they are not unduly penalised for seeking to engage with hard-to-reach consumers.
- encouraging a culture of collaboration and mutual support among stakeholders in the arena of credit union development; and
- extending credit union services via payroll deduction to government and public sector employees and encouraging the private sector to do the same.
Other key areas for medium-term intervention would involve:
- addressing the lack of available credit data for lenders, addressing the indirect impact of banking regulation such as Basel III and Anti-Money Laundering on credit unions’ access to banking services; and
- exploring how credit unions can be assisted to access payment systems.
Finally we would recommend that initiatives for longer term consideration are:
- facilitating social investment into the sector
- creation of new legislative vehicles for pooled credit union investments should be longer-term considerations.
The full response is available to download on the right hand side.