How the Regime Applies

Credit unions are authorised by the Prudential Regulation Authority and regulated by both the PRA and the FCA. The Senior Managers and Certification Regime applies to them, but in a proportionate form that reflects their size and simpler business model. Smaller credit unions typically need fewer Senior Manager Functions than larger ones, with the core usually including a chief executive, where the credit union has one, and a chair of the board. Larger credit unions may need additional functions.

Specific rules for credit unions, covering matters such as lending, savings and liquidity, are set out in the Credit Unions sourcebook. Each Senior Manager needs regulatory approval, a Statement of Responsibilities and is subject to the Senior Manager Conduct Rules. Other directors and relevant staff are subject to the Conduct Rules too.

The Distinctive Challenges

Volunteer Boards

Many credit union directors are volunteers, drawn from the communities the credit union serves. They bring commitment and local knowledge, but not always financial services experience. The regime expects every Senior Manager to be fit and proper for their role, and that includes a volunteer chair.

Small Executive Teams

Smaller credit unions may have only a handful of paid staff, or none. One person may be responsible for lending, operations, compliance and finance, which concentrates risk and accountability.

Succession

Volunteer directors often serve for many years. When long-serving directors step down, finding successors with the right skills, who are willing to take on regulatory accountability, can be difficult.

Growth and Complexity

Credit unions that grow, merge or offer new services face rising expectations on risk management, financial crime controls and technology, often without the resources of commercial lenders.

What Regulators Focus On

• Governance and board capability: whether the board collectively has the skills to oversee the credit union’s risks.
• Financial resilience: capital, liquidity and the quality of the loan book.
• Lending practices: affordability, arrears management and fair treatment of members in financial difficulty.
• Financial crime: anti-money laundering controls proportionate to the credit union’s risks.
• Operational resilience: reliance on third-party technology providers and the ability to keep serving members.
• Consumer outcomes: how members are treated, including vulnerable members, under the Consumer Duty.

Building a Strong Board

Skills Matrix

A simple skills matrix, mapping the board’s experience against the credit union’s needs, helps identify gaps in areas such as finance, risk, lending, IT and compliance.

Targeted Recruitment

Rather than relying on word of mouth, credit unions can recruit directors with specific skills, including from local businesses, professional firms and retired financial services professionals who want to give something back.

Training and Support

Directors benefit from structured induction and ongoing training on their responsibilities, the regime and the credit union’s risks. Sector bodies such as the Association of British Credit Unions provide support and resources.

Term Limits and Succession

Planned rotation, with overlap between outgoing and incoming directors, reduces the risk of losing experience all at once and makes succession more predictable.

Senior Manager Appointments

When a credit union appoints a chief executive or chair who will hold a Senior Manager Function, the regulators will assess whether they’re fit and proper. The fit and proper test covers honesty and integrity, competence and capability, and financial soundness. For a volunteer chair, competence means having the skills to lead the board and oversee the credit union’s risks, not necessarily a career in financial services. The application should explain the candidate’s relevant experience and any support the credit union will provide.

Credit unions should allow time for approval, which can take up to three months once a complete application is submitted, and plan succession for their Senior Managers well in advance. SMF Capital’s guide to how long an SMF appointment actually takes sets out the stages.

Paid Leadership

As credit unions grow, many move from volunteer management to a paid chief executive and management team. That transition raises questions about how the board and executive divide responsibilities, how the Senior Manager Functions are allocated, and how to recruit leaders who understand both the mutual ethos and the regulatory expectations. A governance and SMF structure review can help credit unions work through those questions.

Mergers and Transfers of Engagements

Many smaller credit unions merge with larger ones, often through a transfer of engagements, to secure their future and offer members a wider range of services. Mergers raise immediate questions for the senior team: who will hold each Senior Manager Function in the combined credit union, how the boards will be combined, and how responsibilities will be allocated during integration. New Senior Manager appointments may need approval, and the regulators will want to see a clear plan for governance of the combined organisation. Planning these questions early, rather than after the merger is agreed, reduces the risk of gaps in accountability.

Technology and Third Parties

Most credit unions rely on third-party providers for core banking systems, payments and online services. The credit union remains responsible for those arrangements, including their resilience and security. Boards need enough understanding of technology risk to ask the right questions of providers, and a named Senior Manager should be accountable for overseeing them. Shared services and collaboration between credit unions can help smaller organisations access expertise they couldn’t afford alone.

Common Weaknesses

• Boards without key skills, particularly in finance, risk or technology.
• Over-reliance on one person for several critical functions.
• Unplanned succession, leaving the credit union scrambling when a long-serving director leaves.
• Unclear responsibilities between the board and paid staff.
• Weak management information, giving the board limited visibility of arrears, liquidity or operational issues.

Independent Directors

Many credit unions benefit from bringing in one or two directors with financial services experience alongside member directors, to strengthen oversight of lending, finance and risk. These appointments can be transformative, particularly for credit unions planning growth or mergers. NED Capital, a sister practice of SMF Capital, recruits non-executive directors for boards of all kinds, including member-owned and community organisations.

Questions for Credit Union Boards

• Which Senior Manager Functions apply to us, and are they filled by approved individuals?
• Does our board collectively have the skills to oversee our risks?
• What is our succession plan for the chair, chief executive and key directors?
• Do we depend on any one person for several critical functions?
• Does the board receive clear information on arrears, liquidity and operational risks?
• How do we make sure members, including vulnerable members, get good outcomes?

The Bottom Line

Credit unions provide valuable, community-focused financial services, and the Senior Managers regime applies to them in a proportionate way. The challenges of volunteer boards, small teams and succession are real, but manageable with a clear view of the skills needed, targeted recruitment, good training and planned succession. For more on the Senior Manager Functions involved, see SMF Capital’s Senior Manager Functions guide.