Call to protect credit union savers
Updated on 11 November 2009
New rules to protect people who save money with credit unions have been set out by the City watchdog.
The Financial Services Authority (FSA) is calling for credit unions to hold more money in reserve in order to put them on a more sound financial footing and reduce the number of credit unions that fail.
It is proposing a minimum capital-to-assets ratio of at least 3% for smaller credit unions.
New credit unions would also have to have higher levels of start-up capital - £10,000 for small organisations and £50,000 for larger ones.
The regulator is also calling for credit unions to hold the equivalent of 10% of their liabilities, such as the savings they hold for members, in liquid assets. The new rules would be phased in over two to three years to give credit unions time to comply with them.
The FSA said the changes would ensure credit unions were prepared for Government legislation which will enable them to offer services to a wider group of members and issue shares to people with a link to the credit union.
Credit unions are small not-for-profit organisations under which members pool their savings to lend money to other members. They are open to people who have a common bond, such as living in the same area or working for the same employer. They are particularly popular with people who may not have access to mainstream financial services.
All credit unions offer savings and loans, with larger unions also offering mortgages, current accounts, ISAs and funeral plans.
Paul Sharma, FSA director of prudential policy, said: "Our reforms for credit unions will ensure they are financially sounder, well managed with fewer failures and defaults.
"Raising the standards will also enable firms to be better placed to take advantage of the proposed legislative changes."
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