Regulators float credit union reforms, including path to building society status

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) floated a set of options on Tuesday for changing how credit unions are regulated, including a route for some to become building societies.

The ideas are proposals for comment in a discussion paper, not decisions, and the regulators want firms to react to them and to suggest alternatives.

PRA director of UK deposit takers Shoib Khan said the regulators had “scope to make their regime even more proportionate and growth-friendly”.

Credit unions are member-owned and typically focus on savings and personal loans in a specific occupation, community or area, and they have more than two million members in the UK.

For smaller credit unions, one option is removing some requirements on internal audit and regulatory documents, which the regulators said would cut red tape without compromising stability.

For larger, more complex credit unions, the regulators suggest a risk-based framework that would give them more flexible capital requirements.

Other capital options include applying the standardised approach for risk weighted assets, used by smaller deposit takers, in place of the simple leverage ratio credit unions now report on.

A further option is a simplified version of the Basel framework, with streamlined capital add-ons for large credit unions with specific exposures and a simple buffer to absorb shocks in stress periods.

Another option is a path for credit unions to convert into building societies, which the regulators said would bring a framework more tailored to specific lending and a wider range of funding tools.

The discussion paper says that as credit unions grow and take on more secured lending, such as mortgages, they could become increasingly similar to small building societies.

That, it says, could raise the question of whether they should face a more comparable prudential regime and a broadly level playing field across similarly sized deposit takers.

It also floats an alternative: a clearer pathway for credit unions that have grown significantly into the existing framework for larger deposit takers.

Other items include giving credit unions more guidance on working with third parties, examining barriers to new products and services, and reviewing the framework for solvent exit so firms can transfer business or restructure in an orderly way.

The regulators are also asking whether changes to FCA fees could reduce regulatory costs and support sustainable growth.

A joint report put the number of active credit unions at around 350, with just over £4.9bn in assets and £4.1bn of retail deposits.

The same report said only seven credit unions had more than £100m in assets, and that these accounted for around 25% of the sector’s assets.

The latest paper follows a commitment made on 5 December 2025, when the regulators announced a review of credit union regulation. It was to consider more risk-based requirements for larger, complex firms and proportionality for smaller ones.

FCA executive director of authorisations Sheree Howard said the regulators wanted “to hear directly from the sector about what is working well, where barriers remain”.

Credit unions are dual-regulated, meaning both the FCA and the PRA oversee them.

The paper also refers to a Credit Union Transformation Fund in England, being taken forward by Fair4All Finance.