PRA Letter to Credit Unions 2020

The PRA have issued their annual review of the sector letters

The PRA have issued their annual review of the sector letters to category 5 Credit Unions. There are two versions of the letter. One for Credit Unions with less than £15m in assets and fewer than 10,000 members and one for larger category 5 Credit Unions. We would also recommend that category 4 Credit Unions review the letters as a number of the issues will be relevant to them. Some of the key messages with the letters are set out below:

Single Customer View

The importance of Single Customer View was stressed. They reminded Credit Unions of the obligation to inform the regulator when you change the system you use to produce SCV files. It should be noted that the PRA are priortising testing SCV of Credit Unions where they have doubts over the future viability of the Credit Union. Credit Unions can also now test SCV data directly on the FSCS self-verification portal and we would recommend that Credit Unions look to build this into their testing of SCV.

Operational Resilience

Operational Resilience continues to be a key topic with the regulator. Similar to previous letters they have stated the importance of taking a service based approach to operational resilience and setting tolerance levels.

The PRA expect Credit Unions to carry out an operational risk assessment prior to carrying out any new activities or services. They have also stated that Credit Unions should be considering the risks of outsourced activities including the requirements of section 14 of the PRA Credit Union Rulebook

They have highlighted the increasing number of cyber incidents and  the need for Credit Unions to have policies and procedures in place to deal with these risks. You should also notify the regulator where there have been any significant operational or cyber incidents or events that may impact on continuity of the Credit Union’s services.

Credit Risk

The PRA have highlighted the need for scenario planning and monitoring to help identify deterioration in credit quality of loans and so that the Credit Union can take timely action in such cases including where necessary the tightening lending criteria.


For larger Credit Unions with capital ratios under 10% the PRA have highlighted the distribution rules. This is a topic that has caused much confusion with many Credit Unions and was the topic of our recent blog which can be found by clicking here.

For smaller Credit Unions they again emphasised that there will be increased regulatory monitoring for those with a capital ratio between 3 to 5%

In their letter to smaller category 5 Credit Unions they covered the use of revaluation reserves and subordinated loans. They have encountered a number of cases where subordinated loans do not qualify as capital due to the term of the loan or the conditions attached to the loan. They have have offered the Credit Unions the opportunity to discuss with them where they have any debts over whether reserves or loans qualifying as capital.

Succession Planning

Lastly both letters state the importance of succession planning and bringing on directors with relevant skills. The PRA note this can be challenging especially in the current circumstances and if you cant get sufficient Board members then you need to consider the future of the Credit Union.

See below for links to the letters.

Further Information