PRA annual assessment of credit unions

The PRA has written to credit unions following its annual assessment of the sector. Key messages for both large (those with total assets between £10m and £50m) and small (those with total assets up to £10m) credit unions are:

  • Challenging macro environment – credit unions need to be resilient to a prolonged period of stress (caused by higher interest rates and rising costs of living) and take proactive steps to assess the sustainability of their business models against this evolving economic outlook. The PRA expects boards to regularly monitor their prudential position to manage credit and interest rate risks and other emerging issues;
  • Liquidity – due to changes in the external environment, the PRA has seen instances where credit union liquidity is negatively affected by unexpected member share withdrawals and/or poor management of investment maturity dates. Boards of large credit unions should by 31 October 2023 be able to demonstrate how they have considered and acted on the liquidity risks relevant to their union. Small credit unions should consider potential liquidity issues when updating business plans and projections;
  • SS2/23 requirements – the PRA reminds firms’ boards to review SS2/23 (published in July) and agree a plan of how they will ensure ongoing compliance with the PRA’s requirements and expectations. This plan should be agreed at board level and evidenced appropriately by 31 October 2023.

In relation to corporate governance, the PRA acknowledges that small unions have struggled to attract and retain new board members over the past 12 months. However, it reminds such unions that, where the board is unable to implement an effective succession plan and faces key person risk, existing directors should consider the business’ future and the options available, and take appropriate action. This could include a transfer of engagements or a solvent closure.

Lucy Hadrill