Building Societies have been full of confidence over the last few years, partly as a result of a strong mortgage and savings market and partly due to the belief that it could capitalise on the perceived loss of trust in the banking sector.  

Despite present market conditions, building societies have generally been more resilient than other lenders due to the size of the branch network enabling societies to fund themselves largely from retail deposits, having less reliance on wholesale funding.  

For societies to maintain their market position in today’s market they need to keep up to date with regulatory changes, market conditions and other hot topics; a few of which are outlined below (for more detail on any of these topics please contact us):

The impact of the Credit Crunch – Despite present market turbulence building societies still have significant opportunities, with a more balanced funding structure, though there will be increased competition for retail savings.  Building societies still have the advantage of not paying dividends, meaning that societies continue to offer attractive rates of interest for both borrowing and savings products.

Faster payments – The UK initiative to make payments between individuals and businesses speedier (effective as of 27 May) will improve customer service and reduce costs, but increase risk of error with payments.  Societies that have not yet started planning for its arrival need to address this as a priority, to ensure that they have the relevant systems and processes in place.

Offshore Deposit Accounts - HMRC is currently writing to Financial Institutions requesting meetings to ascertain what information about holders of offshore accounts are held in the UK. Subsequent to this it is expected a new phase of notices, known as Section 20 notices, will be issued, asking for this information to be provided. A variety of issues arise for the financial institutions including how to respond to any request, how to liaise with customers, whether HMRC's approach might be challenged and whether there are limitations on what HMRC can pursue.  

Mortgage effectiveness review - As part of its ongoing review of the effectiveness of the mortgage regulatory regime, the FSA will be performing an assessment of responsible lending and arrears collection practices over the next couple of months. The FSA has explicitly announced its intention to take enforcement action where the expected standards are not being met and where customers are being treated unfairly.

Treating Customers Fairly Managament Information - By the end of December 2008, all Building Societies are expected to have management information in place that enables them to demonstrate to internal and external parties that their customers are being treated fairly. Not only is identifying, collecting and using management information to demonstrate that customers are being treated fairly an extremely challenging task, it is also one that must be undertaken under close regulatory scrutiny as the FSA have embarked on an extensive review programme to assess the progress that firms are making in meeting this deadline.

DP07/7 - represents the FSA's initial thoughts on the way in which quantitative and qualitative prudential liquidity requirements might be changed, principally in response to the evidence gathered of both good and bad practice in the field of liquidity risk management by financial institutions throughout the 'credit crunch'.  It is anticipated that, once feedback has been received on the paper, more concrete proposals will be published during the summer of 2008.

IFRS 7 - IFRS 7 (and its UK GAAP equivalent FRS 29) is the disclosure standard dealing with the financial instruments used by organisations.  The main objectives of the standard are to enable users of the financial statements to evaluate a) the significance of financial instruments for the organisation’s financial position and performance and b) the nature and extent of risks arising from financial instruments to which the organisation is exposed during the period and at the reporting date, and how the organisation manages those risks.