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FSA - Deposit protection: raising consumer awareness

Executive Summary

Credit unions, as the smallest and newest deposit-taking sector in Britain, actively promote their membership of the Financial Services Compensation Scheme because of the credibility and legitimacy that the Scheme provides.  The £85,000 coverage is, aside from a few of the largest credit unions, enough to cover the maximum deposit that it is possible for most credit unions to accept (FSA maximum shareholding limits impose restrictions of 1.5% upon the maximum that a credit union can hold in deposits from a single member relative to total deposits) and so in most cases the FSCS provides a virtual 100% guarantee of deposits held. 

By the same token, many credit unions are very small enterprises.  An analysis of 237 ABCUL credit union annual (CY) returns from the year 2009/10 illustrates the scale of the sector, with:

  • 44% had less than 1,000 member customers
  • 38% had assets of less than £500,000
  • 70% generated less than £200,000 turnover
  • 56% generated a pre-tax profit of less than £10,000

Credit unions’ legitimacy in financial services is underpinned by Financial Services Authority regulation and FSCS membership, however, being so small in many cases, most credit unions’ resources are stretched and therefore the sector would greatly appreciate consideration of this as the proposals in question progress. 

Of course, given the credit union sector’s active promotion of the Financial Services Compensation Scheme, there is little about the objective of the proposals before us that we would object to.  It is, of course, in the interests of financial services in general, and deposit-takers in particular, that awareness of the compensation arrangements is as high as it can be so that the calamitous events of the run on Northern Rock in 2007 can be avoided in future. 

We ask only, therefore, that the obligation to display posters, stickers and leaflets in a deposit-takers’ place of business is applied flexibly (as with the accommodations already confirmed around credit unions which occasionally operate from informal premises such as collection points in community centres) and that the materials that credit unions will be required to display are provided in as cost-effective a way as possible.  In particular, we would like to offer ABCUL’s services in disseminating materials to our member credit unions if to do so could enable cost savings to the individual credit unions.  Similarly, we would like the cost to credit unions for the materials to be charged at no more than upon a cost-recovery basis.

Finally, we welcome the FSA’s recognition that not all credit unions have websites and that, therefore, they do not need to provide online disclosures.

The full response is available to download on the right hand side.