BELFAST BRIEFING:CREDIT UNION members in the North are celebrating an early Christmas present this week – one they hope they will never have to use.

Although not valid until next March, the “gift” has already delivered a confidence boost to 177 local credit unions.

It comes wrapped in new regulatory changes, agreed by the UK’s Financial Services Authority (FSA) and the British treasury, that will guarantee credit union members more protection for their savings.

For the first time since the banking crisis broke, more than 400,000 credit union members in the North will enjoy the same protection as bank customers. From next March every credit union customer will have their deposits protected to the value of £85,000.

The protection comes into play when regulation of all local credit unions passes from the Northern Ireland Department of Enterprise and Investment (Deti) to the FSA. The move will also give credit union members access to the UK’s Financial Ombudsman Service.

It marks a major shake-up, not only in how credit unions will be regulated but also, potentially, how they will operate in the future.

In Britain, credit unions are allowed to offer a whole range of financial services from current accounts to internet, phone banking and even mortgages. Up to now, credit unions locally have been more restricted, and primarily provide share accounts, loans and life assurance.

According to Mark Durkan, the SDLP MP for Foyle, credit unions could play a “bigger and better” role in the North.

He has been the lead figure in a long-running campaign to secure better protection for local credit union members and to persuade the UK treasury to change the law to let credit unions offer more services.

Durkan believes that credit unions could provide a “much bigger contribution to financial inclusion” in Northern Ireland. “At a time when people are finding it harder to get loans from banks and when trust in banks has been shattered, credit unions play a vital role in helping people to get through lean times.

“Money in credit unions also stays locally and helps the local economy,” he adds.

Durkan says the transfer next March of the regulation to the FSA is a “passport that will give credit unions greater opportunities”.

The FSA has confirmed it will place local credit unions on a more equal footing with its counterparts in Britain. As part of the changes, Northern Ireland credit unions will be registered as one of two types – version 1 or version 2.

According to the FSA, the vast majority will be registered as version 1 – credit unions which are not permitted to lend more than £15,000 in excess of a member’s shareholding.

Version 2 is where it gets very interesting for the local financial services sector. Entities so registered have scope to lend more in loans to their members and for longer periods, according to the FSA.

They can invest for longer terms and borrow more, which also means that they have a “somewhat higher risk profile” than version 1 credit unions.

That could mean, in theory, that larger credit unions in the North could offer mortgages for the first time and enter the highly competitive local market dominated by British- and Irish-owned banks and building societies.

But the regulator warns that any credit union applying for version 2 status would be subject to close scrutiny and “higher minimum prudential requirements and must have more detailed procedures and controls”.

This is music to the ears of savers and investors in Northern Ireland, given the mess the Presbyterian Mutual Society (PMS) got itself into for which Northern Ireland will be paying for well into the future.

The PMS was not regulated by the FSA but instead by Deti and we all know how that turned out. The department is still in the process of seeking to disqualify some former directors of the PMS.

The FSA is keen to assure credit union members that the transfer of regulatory responsibility will benefit them because it will provide “greater consumer protection”.

But could it also mean that 2012 will be the year that sees a new competitor giving banks and building societies a run for their money when it comes to personal finance?

According to Prof Anne-Marie Ward from the University of Ulster, it could not come at a better time for both members and for credit unions.

“Credit unions are an important provider of financial services in Northern Ireland. Approximately one-quarter of the adult population are members. The sector has achieved steady growth since its formation in 1960. However, growth rates have tapered off and the sector is not achieving the potential that many believed it would.”

She says the big question now in is whether credit institutions “with a social mandate” should seek to grow and compete with the high street?