Find out how we have simplified the process for authorising credit unions by introducing the mobilisation option to reduce potential barriers to entry in this sector and enable increased competition.
‘Authorisation with restriction’
Mobilisation occurs when authorisation is granted to a firm that has met the required elements of the FCA's, or the Prudential Regulation Authority's (PRA) Threshold Conditions, but a requirement is placed on the firm’s activities due to some areas needing further work. This is known as ‘authorisation with restriction’.
The requirement for a deposit-taking firm such as a credit union will normally limit the scale of deposit-taking to reflect the lack of infrastructure and controls in place while the firm is establishing itself.
Offering mobilisation to credit unions is intended to reduce possible barriers to entry where practicable, including reducing the burden, cost and duration of the application process. It enables a credit union to be registered before it has to enter into contracts that will form part of its authorisation process – for example, to rent premises or to purchase IT.
The mobilisation option means that:
- firms are offered the same pre-application support as in the standard authorisations process
- firms can submit a shorter application
If the application is of the required quality (known as a ‘complete application’), the PRA and FCA make a decision within 6 months.
Mobilisation was previously only available for bank applications and a number of banking firms have already successfully used, and are using, the mobilisation process.
Barriers to entry for credit unions
Credit unions only gain legal status once they have been registered. They can only be registered once the regulators propose to grant permission. Before they are registered, they cannot enter contracts in their name due to the lack of ‘legal personality’, which means you are legally non-existent so you cannot enter contracts or have rights or obligations. As a result, applicant credit unions often have to ask local funders or individuals to enter into contracts (eg for premises and IT systems) which are then transferred to the credit union once it has been authorised and registered (known as ‘novation’).
This adds unnecessary complexity for credit unions, which would be reduced if a credit union could be registered earlier in the authorisation process. Additionally, in our experience, some credit unions have struggled to gain the necessary proof of funding before the credit union is authorised due to limited funding methods currently available.Credit unions can be dependent on one major provider of funding, such as a local authority, who often will need surety of authorisation before committing funding.
Some recent credit union applicants have highlighted that they would also benefit from more flexibility in the regulatory approach in order to manage better their IT-build so that they can put in place the relevant systems and controls, in accordance with our SYSC Handbook provisions.
Our approach to mobilisation for credit unions
We have agreed with the PRA that the mobilisation option will be considered on a case-by-case basis by both regulators. We would discuss this with the applicant before their application is submitted, as part of the pre-application process. It is not expected that mobilisation will benefit all cases. The length of the mobilisation phase is entirely down to the applicant firm. However, mobilisation cannot continue indefinitely. A 12-month cap – from the time of authorisation – will be placed on the length of the mobilisation stage, ensuring the information supplied with the application remains current.
What does mobilisation cover?
Mobilisation covers additional activities such as:
- gathering final funding
- putting in place and testing an appropriate IT platform or outsourcing arrangements
- hiring of necessary staff
- finalising appropriate policies and procedures
- conducting any relevant training
New applicant credit unions are expected to complete mobilisation within 12 months of authorisation. This means they should:
- have a project plan, in which their governing body has confidence, to become fully operational within 12 months, and
- discuss this plan in detail with the regulators before authorisation
How long does mobilisation last?
The length of the mobilisation stage is capped at 12 months. This ensures the information supplied with the application remains current.
If, at the end of 12 months, the firm was judged not to be meeting the conditions necessary for the removal of the requirement, steps would be taken to remove the new credit union’s authorisation.
Pre-application support is already available for credit unions and we encourage applicants to take advantage of it, including if they wish to discuss the mobilisation option. In our experience, applications from firms that have used the pre-application support tends to be of higher quality than the material from firms that have not.
- Considerations for firms thinking of using third-party technology or off-the-shelf banking solutions (July 2014)
- A review of requirements for firms entering into or expanding in the banking sector (March 2013 Bank of England/FSA)
- A review of requirements for firms entering into or expanding in the banking sector: one year on (July 2014 PRA/FCA)