LONDON (Reuters) - The Financial Services Authority plans to tighten rules for credit unions, increasing capital and liquidity requirements to offer better protection for customers and avoid failures and defaults.

The new rules will complement the government's own planned reforms, due to come into effect next spring, which will make it easier for unions to admit corporate members, to issue interest-bearing shares and for troubled groups to merge.

Credit unions are financial cooperatives owned and run by their members, offering savings and loans and based on a "common bond" which determines who can join and limits membership to, for example, a neighbourhood or a group of employees.

Britain has around 500 registered credit unions, a number that is growing thanks to government efforts to boost financial inclusion. Currently, however, the sector is not among the most resilient, with a failure rate of around six unions a year.

Most credit unions are not subject to capital requirements beyond solvency, providing little protection for consumers. Rules currently in force linked to the "common bond" also make it hard for a troubled union to merge with a rival.

Changes proposed by the FSA on Wednesday would see smaller unions meeting a minimum capital-to-assets ratio of 3 percent -- currently they only have to be solvent -- and would raise start-up capital requirements to 10,000 pounds for small unions and 50,000 pounds for larger ones.

The changes would also increase the minium liquidity requirement to 10 percent of total liabilities for all credit unions and aim to raise governance standards. Poor governance is pinpointed by the FSA as a key reason for credit union failure.

The FSA said it would take comments on its proposals until February 10, 2010, with plans to bring the new rules into effect in the second quarter of 2010. The changes will be phased in over two to three years.

(Reporting by Clara Ferreira-Marques; Editing by Joel Dimmock)