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HM Treasury – Draft Innovation Plan for Financial Services

Response to the consultation

ABCUL appreciates the Government’s commitment to supporting innovation and competition in financial services.  While not perfect, the regulatory regime for credit unions is proportionate and responsive to the needs of credit unions as small deposit-takers with a social mission. This is sustained by an ongoing commitment by HM Government to support exemptions from EU legislation and for proportionate domestic arrangements to be made by the FCA and PRA.

Furthermore we support the developments begun with the advent of the Payment Systems Regulator and related work to open up to competition and access the payments infrastructure of the UK in support of new entrants and competition in payment service provision. We are encouraged by a number of the initiatives which are emerging from this process which should create new routes to credit unions and other smaller payment service providers entering and innovating in the payments market and enhancind competition in support of better consumer outcomes.

We also support the principles behind some of the Financial Conduct Authority’s work to promote innovation through the Innovation Hub and the Regulatory Sandbox initiatives both of which are rightly attracting attention internationally as intelligent approaches to the promotion of innovation and vibrancy in the financial services market.  These are initiatives which are to be commended and to which we will encourage our membership to engage with as the credit union movement continues to grow and mature.

We would, however, like to highlight one respect in which we have some concerns regarding regulatory policy in respect of credit unions and its potential to stifle and frustrate innovation.  Recently we have found that in various contexts the regulators have adopted restrictive interpretations of what the Credit Unions Act lays down as the purpose of a credit union and the powers that credit unions have to act.  We are concerned that this reflects a lack of willingness on the part of the regulators to allow credit unions to innovate around the services and products they offer to their members in order to support their viability and engage new members.  This is despite real and credible efforts on the part of credit unions and their partners to demonstrate the compliance and effectiveness of these innovations in meeting the needs of consumers in a responsible way and increasing competition in the market.

It is vital that the powers of credit unions to innovate and develop their product offering is supported by an enabling and permissive approach by the regulators.  The regulators should focus their efforts on proportionate application of their statutory objectives which, in the case of FCA for example, are to ensure products are delivered in the interests of consumers and in a competitive market.  Credit union innovation, provided it is well-developed and sensitive to consumer needs, supports these objectives and provided they are broadly in keeping with the credit union objects as set down by the Credit Unions Act, should be allowed. 

Longer term innovation in the credit union sector would be supported by legislation to clarify and bolster the powers of credit unions to provide any reasonable financial service in the interests of its members, in line with the commitment made to review credit union legislation in 2015. 

The full PDF version of this response is available to download on the right-hand side.