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Prudential Regulation Authority – Nationalising the Acquis

Response to consultation

We limit our feedback in this response to the proposals affecting credit unions contained in chapter 6 of this consultation.

Credit unions are restricted in their investment activities in the credit unions’ part of the PRA rulebook to products provided by a credit institution authorised in an EEA state to accept deposits. Providing certain regulatory obligations are met, credit unions may hold these investments for a maximum term of 5 years.

As a result of the EEA’s proposed third country status post-exit day the 55 credit unions which currently have investments in EEA credit institutions may be required move these funds into a UK bank after the period of transitional relief.

We have sought feedback from our membership on this point to understand the potential impact on credit unions of having to repatriate funds at exit day. We have also conducted analysis of annual return data which we receive from our membership and engaged in outreach to investment intermediaries and providers of structured deposit products to the credit union sector.

While we accept the premise contained within the consultation paper that since all but one of the EEA banks holding credit union funds has plans to apply for a UK banking licence post exit, there are likely to be opportunities for credit unions to therefore move their funds to that new branch, we are concerned that in practice this may present technical challenges or commercial penalties which might make the repatriation of funds difficult and may, in extreme cases, undermine their financial position. Similarly, the expression of an interest in applying for a UK licence may not in all cases translate into that interest being pursued in practice which therefore may leave credit unions with limited options in order to comply.

We are encouraged by the pledge that the PRA will utilise its temporary transitional power to allow credit unions to continue to hold these deposits for a period of time after exit day to allow for a smooth transition to the new regime. We strongly support this proposal which could be critical for a small number of credit unions.

We would like to see the PRA pursue this intended course and to provide further details as soon as possible as to how long the transitional relief might last, the conditions it intends to attach to its use, any additional reporting that may be required for those enjoying the relief and the means by which firms might apply. It is imperative that conditions attached to relief are proportionate and appropriate to the size of firm and the relative risk inherent in granting the relief.

We would be happy to discuss this feedback or provide further details should that be required.