“Twin Peaks”, Regulatory Reform, and Credit Unions

On  19th December 2012  The Financial Services Act 2012 received the Royal Assent and became Law. Sections 50 to 57 deal with the transfer from the FSA to the new Financial Conduct Authority (FCA) of the registration function for industrial and provident societies. The FCA will come into existence on 1st April 2013 and since 2nd April 2012 the FSA has operated on the “Twin Peaks”  (remember that?) basis of separating the functions currently within the FSA which move to the FCA from those moving to the Prudential Regulation Authority (PRA) in preparation for the “legal cut off” when the two new regulators exist.

For societies other than credit unions, the move is simply to the FCA and remains a matter of registration rather than regulation as  financial services firms. The FCA will carry out the function that was in the hands of the Registrar of Friendly Societies from the Industrial and Provident Societies Act 1852 until it was transferred to the FSA under the Financial Services and Markets Act 2000 (FSMA) in 2001.

Credit Unions face significant change. They will be registered as industrial and provident societies by the FCA which will also supervise them as financial services organisations for consumer protection purposes. However, the PRA will deal with issues about the “safety and soundness” of the organisation. Under the FSMA system, one body (the FSA) and one Credit Union Supervision Team within that body dealt with registration, prudential supervision and consumer protection for credit unions.

A special credit union newsletter from the FSA outlined these plans in September 2012. During 2012 the Credit Union Supervision Team was split into two teams the Prudential Business Unit and the Conduct Business Unit as part of the FSA’s “internal twin peaks” preparation for the split between FCA and PRA in April 2013.  From April this year, most credit union regulation will be by the PRA, concerning capital, liquidity, loans arrears, large exposures, investments, borrowing, etc. The PRA will also be concerned with governance issues and the functioning and competence of boards in terms of prudential risks. This is reflected in CREDS which will continue to apply, presumably with some modifications. There is a hint that expectations of boards will be higher under the new system.

It will be interesting to see how well this threefold division of functions (registration, prudential supervision and consumer protection) for these modest sized financial services organisations works. Hopefully, there will be close co-ordination between the credit union teams within PRA and FCA as envisaged in their “high level” draft Memorandum of Understanding.

As I pointed out in a blog post last August when the Financial Services Bill was on its way through Parliament, for most societies the move of the registration function will largely be a formality according to the draft Mutual Societies Order provided to Parliament during its consideration of the Financial Services Bill. However, I notice two points in the draft order which will probably affect how the FCA will carry out its registration role.

In my next post I’ll look at those.

 

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One Response to “Twin Peaks”, Regulatory Reform, and Credit Unions

  1. Wayne Graham says:

    Do credit unions still work in 2015, I am not sure anymore, at least in the UK. At Advocate Debt Recovery we have received 3 instructions in the last 8 months for recovery action against credit unions.

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