The Bank of England, in partnership with the Prudential Regulation Authority (PRA), has issued a report on country’s finance mutuals, with recommendations for ways to ease the start-up process and reduce admin costs.
Measures proposed in the report include a review of credit union law, the launch of a Mutual Societies Development Unit by the Financial Conduct Authority (FCA), and continued efforts to deliver more proportionate regulation.
Mutuals, credit unions and other member-owned lenders in the UK – and around the world – have complained that regulations designed for ‘too big to fail’ banking giants, especially in the wake of the 2009 financial crisis, had left them labouring under time-consuming and costly regulation that do not reflect their risks.
“The PRA and FCA recognise the government’s commitment to grow the mutual and co-operative sector as a whole,” says the report. “Effective and proportionate regulation has an important role in achieving this outcome by enabling sustainable growth and protecting consumers, alongside an appropriate legislative framework and a clear vision driven by the mutuals sector.”
The PRA has already introduced proportionality through its Strong and Simple regime for small deposit takers and Solvency UK for insurers, the report added.
Meanwhile, the report promises active support for growth ambitions with initiatives like the FCA/PRA Scale-up Unit, and FCA support services.
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“Mutuals are a unique sector and so require a tailored regulatory response,” the report says. “In the last year we have eased regulations for building societies to enable them to compete more easily with banks, supported credit unions by helping them set up shared service organisations, and worked with the Law Commission to modernise Friendly Societies legislation for insurers.”
Regulation of the credit union sector will be reformed to reflect the evolving role of the sector, the report says. “We are committed to engaging with the sector to undertake a comprehensive review and to consider the longer-term evolution of the sector’s regulatory framework.”
One significant change in the sector in recent years is the growth of some credit unions, often through consolidation, to a size similar to smaller building societies – a trend which may continue as common bond rules are relaxed.
“This suggests the need for a review of the regulatory regime that applies to larger or more complex credit unions to ensure it continues to reflect the risks and needs posed by these firms,” the report says.
But, it adds, “We have aimed to apply governance requirements in a balanced way by introducing a simpler framework for approving senior positions in credit unions, recognising the reliance on voluntary staff.”
Another ask from the credit union sector is a relaxation around the rules on credit union service organisations (cusos) – secondary co-ops which allow them to pool resources, build scale and access services.
“The PRA recognises that cusos can have an important role in facilitating credit union growth and ensuring their sustainability,” the report says, “and therefore proposes to remove barriers to cusos while establishing guardrails to ensure any associated prudential risks are managed in changes expected to be introduced in early 2026.”
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Similar help is being offered elsewhere in the mutual landscape, with insurers being offered a simpler process when it comes to consolidation to build scale, a simplification of the rules around life insurance product description.
And there will be simplification of liquidity and capital requirements for building societies – particularly those operating at smaller scale.
Published alongside the report was the FCA’s Registering Authority landscape report, which sets out improvements to the Mutuals Public Register. The FCA is setting up a new Mutual Societies Development Unit, to “engage policymakers, academics and researchers, think-tanks, trade bodies and others on policy and understanding relating to mutual societies.
“We have longstanding experience as a registering authority across seven pieces of mutuals legislation,” says the FCA in the report. “We can use this experience to support public authorities and governments across the UK in their consideration of mutuals.
“As historic growth in the society model has come from discrete policy initiatives (eg housing, agriculture, etc), we feel this is of particular value.”
It adds: “Through this work, we will continue to explore the creation of a Statement of Recommended Practice (SORP) for co-operative accounts, to help facilitate the right supply of accounting expertise to the sector.
“As part of the unit, we will support the sector as it works to develop new models such as by harnessing technology, creating networks or secondary structures, and raising capital.”
The move has been welcomed by sector bodies including the Association of British Credit Unions (Abcul), whose CEO Matt Bland said: “We strongly welcome the publication of the Mutuals Landscape Report and the clear recognition from regulators that a modern, proportionate framework is essential to unlocking the full potential of credit unions. This and the steps already taken to remove regulatory burden and promote CUSO development are important signals of support.
“The commitment to a comprehensive review of the credit union regulatory regime creates a major opportunity to create a regulatory platform from which to deliver the doubling agenda and wider financial inclusion strategy and ultimately, to deliver for the communities that credit unions serve. We would like to thank FCA and PRA as well as HM Treasury for their ambition and support for credit union growth.
“We are excited to work with regulators and government as we take forward these measures alongside the wider agenda for credit union transformation.”
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James Wright, policy lead at Co-operatives UK, said: “We welcome the recommendations in the FCA’s report. We are pleased it reflect the needs of the sector – and our input based on our members’ needs – and includes sensible, practical measures to help with setting up and running societies.”
Joe Fortune, general secretary of the Co-operative Party, said: “Owned by their members and rooted in their communities, mutuals are one of the fairest forms of finance and are crucial to growing our economy from the grassroots.
“Today’s announcements are another promising step towards a fair and level playing field for co-ops and mutuals, so they they can grow and thrive, as part of this government’s world leading commitment to double the size of the co-operative and mutual sector.“
Ruth Doubleday, head of prudential regulation at the Building Societies Association., said: “The publication of the Mutuals Landscape Report and the retirement of the Building Societies Sourcebook mark the beginning of a new era of more proportionate regulation, whether relating to a firm’s size or business model type.
“Mutuals are vital for a competitive financial services market, offering better rates for savers and borrowers and providing a stable, long-term approach that benefits the wider economy. This report is a great reminder that when regulation recognises different business models, consumers, communities and the financial system all benefit.”
Ewen Tweedie, actuarial director at Broadstone, a UK financial services consultancy and a leading advisor to the mutual and friendly sector, said:
“The FCA’s proposals to galvanise and support the growth of mutuals are aimed at achieving the government’s ambition of doubling the size of the sector.
“Access to capital is cited by mutuals as a key barrier to innovation and growth, however there are financing options available to mutuals to access capital through existing structures, such as Tier 2 loans or reinsurance structures.
“To double, requires thinking differently. This means transforming into businesses that not only serve their customers well, and respect their heritage, but that are cost efficient and scalable. The launch of the FCA’s Mutual Societies Development Unit alongside the PRA’s Scale-Up unit is a welcome innovation … providing a quicker route to test innovations at lower cost.
“The proposals make it simpler to establish new mutuals with regulatory support and reduced application times aim to encourage more activity in this part of the financial services ecosystem. Similarly, more proportionate regulation will help smaller firms thrive and serve their membership rather than pulling up the ladder.
“Mutuals look after their members, it’s what they do best, and these developments position them strongly to play a more significant role in a thriving and resilient financial system in the UK.”
