CP13/25 – Credit Union Service Organisations

This consultation comes following the PRAs recently letter issued in March which laid out their current position on Credit Union Service Organisations (CUSOs) and their commitment to launch a detailed consultation.

The PRA has published a consultation paper (CP), CP13/25 Credit Union Service Organisations. The paper sets out proposed rules and expectations for credit unions who invest or wish to invest in Credit Union Service Organisations (CUSOs). It also proposes other clarification amendments.

The proposals in this consultation would result in changes to the Credit Unions Part of the PRA Rulebook and Supervisory Statement 2/23.

Overview of the CP proposals are:

• Amendments to the PRA’s investment rules to permit credit unions to invest in CUSOs, together with expectations of credit unions that invest in or use CUSO’s to be set out in SS2/23;
• Amendments to Chapter 17 of SS2/23 resulting from the proposed deletion of SS20/15

What are CUSO’s?

CUSOs are entities that are owned by credit unions and provide shared services to them thereby providing economies of scale benefits. Over the years a number of CUSOs were already set up across the UK, however, the rules in the Credit Unions Part of the Rulebook may prevent a credit union from holding an interest/investment in a CUSO, depending on how that interest is structured.

Overview

The PRA have noted the importance of CUSOs in facilitating growth for credit unions. The PRA is proposing to amend its rules to make it clear that credit union investments in CUSOs are permitted, while providing ‘guardrails’ to manage the associated prudential risks.

The PRA’s Proposals

Rule Amendments

Amendments to the investment rules to make it clear that credit union investments in CUSOs are permitted by inserting the following into 6.3 of the PRA’s Credit Union Rulebook:

(6) in an entity in order for it to provide ancillary services, including trade association services, exclusively to credit unions and the members of those credit unions, for the benefit of those credit unions and its members, and the ancillary services do not form part of the regulated activities of the credit unions.

The PRA also proposes to set expectations of the credit unions that invest in or use CUSOs in a new chapter (18) of SS2/23. The PRA do highlight the legislative prohibition on subsidiaries (preventing a credit union owning a majority ownership of a subsidiary or  controlling interest in a subsidiary) which is set out in the Credit Unions Act 1979.

The PRA details their expectations of credit unions investing in a CUSO throughout the full process and that credit unions wishing to invest in a CUSO should engage with the PRA at an early stage in the process.

Proposed amendments on expectations for credit unions that provide mortgages

The PRA are also making minor amendments to Chapter 17 of the SS2/23 – Additional expectations for credit unions that provide mortgages – resulting from the PRA’s proposed deletion of SS20/15.

Amendments to Chapter 17 include:

• Removal of all references to SS20/15 and any linked appendices
• Clarifying the level of expectation for credit unions in relation to risk pricing models that take into account a number of factors including:
  • Credit reference information
  • The outcome of internal stress testing
  • Underlying cost of funding the loan, and
  • The credit union Board’s target return on capital
• Ensuring board -approved lending policy is consistent with the risk appetite agreed by the board
• In relation to treasury risk management policy the PRA have stated that the imposition of policy limits sets part of the board policy and they expect this to confirm risk positions within levels considered by the board and management to be prudent, given the size, complexity and capital needs of the credit union.

Before investing

• Appropriate due diligence carried out and evidenced
• The credit union should be able to provide the PRA with the following:
  • A description of the intended governance, management and staffing of the CUSO
  • Services the CUSO will provide
  • A description of how the CUSO will be funded – initial investment and ongoing investment commitments, and
  • A description of how the credit union has satisfied itself that the credit unions liability is limited to the amount invested

The PRA may also request to see further documentation/evidence that the CU has, before investing in a CUSO or establishing a CUSO:

• Oversight of the CUSO’s business plan
• Undertaken a risk assessment
• A clear view of the proposed exit strategy and termination process

Investment liability and requirements

The PRA have stated that the amount a credit union invests in one or more CUSO’s should be no more than 5% of its total capital. This has been based on the PRA’s analysis of credit unions quarterly returns data; which they have stated if increased to 10% capital would result in a level of failures which is above the PRA’s risk appetite.

The PRA also expects:

• That in certain circumstance investments may exceed the 5% limit – for example one off set-up costs – to engage with the PRA on their rational and plan to mitigate any associated risks.
• A credit union investing should be able to evidence how they have satisfied themselves that the credit union is legally and operationally separate form the CUSO and that the credit unions liability if limited to the amount invested.
  • This may be by obtaining written legal advice as to whether the CUSO arrangement meets this expectation
  • The CUSO board should include at least one independent director
• That the credit union investing in a CUSO shares the CUSOs accounts with the PRA on request

Credit Unions already invested in, or using, a CUSO

Any credit union who is already invested in or is using a CUSO’s services should review 18.4-18.7 in the new Chapter 18 of the Supervisory Statement 2/23, to see if they are able to meet the PRA’s expectations and can provide the above information to the PRA on request.

Where any CUSO arrangement does not meet the PRA’s expectations or exceeds the investment limit credit unions should engage with the PRA and set out a mitigation plan.

Outsourcing expectations

As per any material outsourcing credit union must ensure they are meeting the existing rules and expectations when outsourcing any services to a CUSO. The PRA have clearly stated that the fact credit union may (part) own the CUSO in no way diminishes the responsibility of the credit union’s board and management accountability and responsibility to ensure outsourcing risks are identified, assessed, monitored, reported on and managed.

Credit unions that part own CUSO’s are expected to have a policy on how they will supervise the CUSO activities and manage any associated risks. The policy should cover the following:

• Responsibilities of the board
• Management and board reporting
• Details of the line of risk oversight of outsourced activities including incident reporting
• Procedures for identifying, managing, and mitigating risks including conflicts of interest
• Business continuity and substitutability arrangements, and
• The process for exiting the CUSO arrangement.

The PRA have also reinforced that where a credit union has outsourced its services to a CUSO but does not own the CUSO that they are still under the PRA’s outsourcing expectations but will be applied proportionately according to the size and activities of the credit union.

ABCUL’s View: ABCUL welcomes the consultation by the PRA and generally supports the proposals. We do however have some concerns over the lack of ability for other non-credit union organisations to invest in any CUSO (e.g. when innovators partner with credit unions to offer a service) like they are able to facilitate in other countries like North America.  We do caveat that most state credit union rules require that the majority of the CUSO must be credit union owned, others do not have any minimum rule in place. We would like to see more flexibility to allow other non-credit union organisations to be able to partner with credit unions in being able to provide a diverse range of products and services.

While we understand the PRA’s concerns around the maximum percentage of capital investment, we would be eager to see if those credit unions who are in a stronger financial position could have the option to invest more that the 5% of capital if they met a certain criterion, set by the PRA.

Responses and Next Steps

ABCUL is eager to hear our member credit unions views on the proposals and asks that all responses are sent to advocacy@abcul.org and received by the close of business on Monday, 20 October 2025.

The PRA proposes that the implementation date for the changes resulting from CP13/25 would take effect upon the publication of the final policy.

ABCUL will ensure members are informed and briefed on the final policy once published.