Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by the Building Societies Association (BSA)


  1. The Building Societies Association has only a few brief points to make to the Joint Committee on Financial Services and Markets on the draft Financial Services and Markets Bill. The Association notes that the Committee has access to material already submitted to the Treasury—our detailed comments on the draft Bill were submitted to the Treasury on 29 October 1998. The BSA represents the 71 building societies in the UK which currently have total assets of over £150 billion, around 19 million investors and nearly 3 million borrowers.

  2. There are a number of key issues for building societies arising from the draft Financial Services and Markets Bill. However, the Bill is drafted in very broad and wide ranging terms, with many provisions giving wide powers to the Financial Services Authority or the Treasury. This will undoubtedly provide welcome flexibility in the way in which the regulatory system is operated in practice, and is able to develop in future. Furthermore, the Treasury progress report on the Bill (issued on 5 March 1999) gives some helpful indications that some of the concerns expressed by the BSA and other bodies last year are likely to be met. Our remaining concerns can largely be raised in response to the appropriate more detailed consultations by the FSA and Treasury.

  3. The key issues for building societies arising from the draft Bill, relevant to the areas on which the Committee is focussing its inquiry, are referred to briefly below.


  4. Our original concerns about arrangements for accountability of the FSA have largely been met by the proposed changes to the draft Bill noted in the Treasury's progress report.


  5. The Association believes that there should be an additional matter to which the FSA must have regard in discharging its general functions (Clause 2(3) of the draft Bill)—the desirability of maintaining corporate diversity among enterprises providing financial services in order to widen consumer choice.


  6. Here again, the proposed changes to the draft Bill noted in the Treasury's progress report, and the FSA's proposals in its Consultation Paper 17, are welcomed. However, the draft Bill would give the FSA very wide powers to intervene in the business of an authorised person if there had been a breach of any requirement imposed by or under the Bill, or if it appeared desirable to do so in order to protect customers or potential customers. The potential impact of using these powers could be significant for the business concerned, and the Association remains concerned that the differences between the requirements of rules for conduct of business regulation (i.e., at the product or individual sales level) and of rules for prudential supervision (i.e., at the institution level) should be appropriately recognised.

  7. The public use of intervention powers in relation to a deposit taker could create a serious loss of confidence in the institution with consequent adverse effects on individual depositors. While, in certain circumstances, the powers of control currently available to the Building Societies Commission under the Building Societies Act 1986 are as wide as some of those to be available to the FSA under the draft Bill, the Commission has used its formal statutory powers in only a tiny number of cases. The Association is concerned that the FSA should use its formal statutory powers of intervention in relation to any prudential concerns about a building society only as a last resort.


  8. The Association believes that conduct of business regulation should not be extended to mortgages or deposits—the Council of Mortgage Lenders Mortgage Code and the joint BBA/BSA Banking Code provide appropriate safeguards for consumers in these areas and can readily be amended where necessary. Bringing these areas into statutory regulation would create very significant additional costs of compliance which would have to be passed on to consumers.


  9. The Association's main concerns with the Ombudsman and compensation schemes is that there should be appropriate allocation of the Ombudsman costs and of contributions to compensation sub-schemes between different categories of institutions and business sectors. Factors to be considered in determining such allocation should include the risk profile of particular sectors.

31 March 1999

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