Memorandum by the Building Societies Association
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 Treasuryour 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 depositsthe
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