A new system of regulation for Britain's 700 credit unions comes into effect today operated by the Financial Services Authority.
Credit Union members will be given similar protection to bank customers under the new regulatory measures.
Ruth Kelly, Financial Secretary to the Treasury, says: “Today's announcement is a milestone for the credit union movement. For the first time credit union members will receive a similar level of protection to that afforded to bank and building society customers.
“The Government believes that credit unions have an important role in tackling financial exclusion, encouraging saving and providing affordable credit. FSA regulation will allow credit unions to offer a wider range of services and compete more effectively for deposits.
“The Government received strong support from across the credit union movement for regulation by the FSA. There has been a wide-ranging consultation to ensure that the new regime is proportionate.”
FSA Chairman Howard Davies says: “It's just over two and a half years since the Government asked us to regulate credit unions.
“I said then that the FSA would create a regulatory regime that would be practical and which took account of the special characteristics of credit unions. I am confident we have now done so. The new standards and requirements we have set out for credit unions are designed to allow the movement to advance while giving greater protection to members, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service.
“As a result, saving with a credit union should be 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.
“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.”
“Some credit unions will find it harder than others to make the transition to the new regulatory requirements. So at the start of the year we set up a support team to work with credit unions – and other interested parties such as the trade associations, local authorities and funding agencies – to help them meet the challenge. In the great majority of cases the outcome has so far been positive.”
Looking ahead to the future prospects for the credit union movement, David Strachan, Director Deposit Takers Division at the FSA, says: “I am encouraged by the growing realisation within the sector that credit unions have to be successful as financial enterprises if the movement is to progress. Reflecting this there is an increasing move towards consolidation to create credit unions large enough to be financially viable while not so large as to lose contact with the communities and groups they aim to serve.
“Over the medium to long term, the number of unions may therefore decline while total membership and assets continue to grow.
“Developments in other countries may be a pointer to the future of sector here – in Ireland there are 200 fewer credit unions than in Britain but with something like ten times as many members.”