The Prudential Regulatory Authority (PRA) has published a consultation paper (CP13/25) in which it proposes rules and expectations in relation to credit unions that invest in, or wish to invest in, Credit Union Service Organisations (CUSOs).
CUSOs are popular amongst the credit union industry in the United States and in Ireland, and are gaining in popularity in the United Kingdom. They are generally speaking entities that are owned by credit unions, and are primarily designed to provide shared services to the owners. Services might include human resources, information technology and compliance support services such as data protection. These are often services that smaller credit unions cannot afford to employ in their own right, and CUSOs therefore provide the potential to share costs with others, as well as accessing new and better-quality services.
The PRA acknowledges in their consultation that CUSOs have the potential to play an important role in facilitating credit union growth. Supporting CUSOs may help the PRA advance its competition objective (supporting smaller financial institutions by levelling the playing field) and its secondary competitiveness and growth objective by facilitating innovation and growth.
The consultation recognises that rules in the current Credit Unions Part of the PRA rulebook may prevent a credit union from holding an interest or investment in a CUSO. It therefore proposes amendments to its rules to permit such investment.
The proposals also include adjustments to the PRA's supervisory statement for credit unions (SS 2/23) to include a new chapter in which it will set out its expectations of credit unions who choose to make an investment in a CUSO. These include that credit unions carry out due diligence and risk analysis before investing, and that their liability is capped to the amount of their investment. If a credit union uses its own capital to fund the investment, then that should also be capped at 5% of the credit union's total capital.
The consultation is open for responses until 24 October 2025.
If you would like to discuss the benefits and risks of CUSOs in further detail, please contact John Lunn, who heads our Consumer Finance team, and Robin Fallas, a partner in our Commercial team, who has recent experience in establishing a CUSO for three credit unions in Scotland.
