UK: PRA discussion paper - the prudential framework for non-systemic banks and building societies

The Prudential Regulation Authority has published a discussion paper the purpose of which is to start exploring options for the creation of a simpler prudential framework for banks and building societies that are neither systemically important nor internationally active: see here (pdf).

UK: Banking Standards Board publishes its 2017/18 annual review

The Banking Standards Board has published its 2017/18 annual review: see here. This includes the results of the BSB's survey of behaviour, competence and culture in UK banks and building societies. The survey received over 36,000 responses, from those working in 25 institutions, with 750 people taking part in focus groups.  Just over a quarter of respondents reported that working in their organisation was having a negative impact on their health and well-being.  49% of employees said that people in their organisation did not get defensive when their views were challenged; 27% reported that they would be worried about negative consequences if they raised concerns about the way their organisation operated.

UK: Building societies and floating charges

The Financial Services (Banking Reform) Act 2013 (Commencement (No. 8) and Consequential Provisions) Order 2015 was laid before Parliament yesterday and comes into force on 26th March 2015: see here or here (pdf). The purpose of the Order is to commence paragraph 4 of Schedule 9 of the Financial Services (Banking Reform) Act 2013 in order to allow building societies to create floating charges. Further information is available in the explanatory memorandum: see here (pdf).

UK: The Bank Recovery and Resolution Order 2014

The Bank Recovery and Resolution Order 2014 was made last month and came into force on 1 January: see here or here (pdf). The Order is one of several that implement Directive 2014/59/EU (establishing a framework for the recovery and resolution of credit institutions and investment firms). An explanatory memorandum is available here (pdf). A transposition note for the Directive is available here (pdf).

UK: The UK Corporate Governance Code - BSA guidance for building societies

The Building Societies Regulatory Guide states that building societies should have regard to the UK Corporate Governance Code when establishing and reviewing their corporate governance arrangements (see 1.3.2). Guidance for building societies in this regard has recently been published by the Building Societies Association, following the publication of a new UK Code earlier this year: see here (pdf).

UK: Bank of England publishes resolution framework

The Bank of England has published its framework for resolving failing banks, building societies and certain types of investment firm: see here (pdf). The first part of the document explains the aims of resolution and describes the key feature of the UK's resolution regime. The second part explains how the Bank expects to carry out the resolution of a failing firm in practice, using the powers available to it as the UK resolution authority.

UK: The Building Societies (Accounts and Related Provisions) (Amendment) Regulations 2014

The Building Societies (Accounts and Related Provisions) (Amendment) Regulations 2014 were laid before Parliament yesterday: see here or here (pdf). The Regulations come into force immediately after paragraph 5 of Schedule 9 to the Financial Services (Banking Reform) Act 2013 comes into force. The Regulations amend existing Regulations in order to remove the requirement for building societies to include in their annual business statement certain information relating to officers who are not directors. An explanatory memorandum is available here (pdf).

UK: FRC publishes draft plan, budget and levy proposals for 2014/15

The Financial Reporting Council has published its draft plan, budget and levy proposals for 2014/15: see here (pdf). Views are sought on the priorities identified by the FRC. Amongst other things, the FRC is proposing to assess the quality of board succession planning and consider how to develop best practice. It is also proposing to undertake a review of the progress made by major audit firms in improving the auditing of banks and building societies.

UK: FCA bans promotion of unregulated collective investment schemes to most retail investors

The Financial Conduct Authority has published rules to ban the promotion of unregulated collective investment schemes and certain close substitutes to most retail investors in the UK: see here. The products within the ban are less extensive than originally proposed. The rules come into force on 1 January 2014 and are published in the FCA's policy statement: see here (pdf). The FCA has also stated that it intends to consult on whether to impose restrictions on the marketing of new types of security including contingent convertibles, building society deferred shares and similar instruments.

UK: FPC asks FSA to review bank capital

The Interim Financial Policy Committee of the Bank of England published its bi-annual financial stability report yesterday: see here. The FPC has recommended that the Financial Services Authority take action to ensure that the capital of UK banks and building societies reflects "a proper valuation of their assets, a realistic assessment of future conduct costs and prudent calculation of risk weights". This reflects the FPC's concern that banks' capital could be overstated.

UK: Government publishes draft of the Financial Services (Banking Reform) Bill

Last Friday the Government published a draft of the Financial Services (Banking Reform) Bill: see here (pdf). The purpose of the Bill, amongst other things, is to establish the framework for the ring-fencing of activities within banking groups. The Bill will be subjected to pre-legislative scrutiny by the Parliamentary Commission on Banking Standards, chaired by Andrew Tyrie and scheduled to report by 18 December.

UK: financial services and the risks to customers from sales staff financial incentives

The Financial Services Authority has begun work to address the risks of mis-selling arising from the incentives received by sales staff working in retail financial services. This work will be continued by the new Financial Conduct Authority. In a review of 22 authorised firms (including banks, building societies, insurance companies and investment firms), the FSA found that most firms did not have effective systems and control in place to manage adequately the risks of mis-selling arising from sales staff incentives. In 20 of the 22 firms reviewed, the FSA found that the incentives schemes were structured in ways that increased the risk of mis-selling. In order to assist firms identify and manage the risks arising from their incentive schemes, guidance has been published by the FSA for consultation: see here (pdf). Where the potential for mis-selling from particular incentives cannot be mitigated, the guidance makes clear that those incentives should not be provided to staff.

Martin Wheatley, the managing director of the Conduct Business Unit in the Financial Services Authority and chief executive designate of the new Financial Conduct Authority, spoke about the FSA's findings and proposals in a speech today titled "The incentivisation of sales staff – are consumers getting a fair deal?": see here. The speech is noteworthy for its tone. Mr Wheatley makes clear that cultural change within institutions is required: customers should not, in his words, be regarded simply as sales targets. Moreover, he made clear that the behaviour and attitude of firms - from the boardroom to point of sale - would be examined and assessed by the new FCA as part of its consumer protection role. A short video extract from Mr Wheatley's speech is available below (with acknowledgements to the BBC).

UK: Government consultation - the future of building societies

The Government published a consultation paper last Friday titled The future of building societies: see here (pdf). The paper sets out reform principles and explains the Government's proposals with regard to building societies and the Independent Commission on Banking's recommendations. The same restrictions that apply to ring-fenced banks will be applied to building societies and it is proposed that there will be no de minimis exemption. Building societies will not be included in the ring-fencing legislation (the Banking Reform Bill, due in the new year) but amendments will instead be made to the Building Societies Act 1986.

UK: building society capital and related issues - consultation paper

HM Treasury yesterday published a consultation paper seeking responses to some very broad questions concerning capital raising by building societies and related governance issues: see here (pdf).

The paper contains many suggestions including providing Core Tier 1 capital instrument holders with the right to nominate a board member, with the society's members retaining the right to remove such board members at the annual general meeting.

UK: the Building Society Sourcebook

Following a consultation last year, the Financial Services Authority has now published a copy of the Building Society Sourcebook, which becomes part of the FSA Handbook: see here (pdf). For further information see the FSA press release and newsletter (pdf).

UK: corporate governance at building societies

The Building Societies Association has published the fourth edition of Conversations with Members - Member Engagement at Building Societies: see here (pdf). This report provide a very useful overview of building society governance and in the section titled "Members' Direction and Control" there is information on governance matters across the sector including attendance at AGMs, board composition and directors' remuneration.

UK: proposed building society governance code - BSA response

The Building Societies Association has provided this short response to the announcement, in today's pre-budget report, of the Government's proposal for a governance code for building societies:

We see this as building on the annotated Combined Code which the BSA already publishes for building societies - and with which there is a high level of compliance".

UK: the pre-budget report: tax, stock lending and a governance code for building societies

The chancellor delivered his pre-budget report (PBR) today and, as expected, announced the introduction of a temporary bank payroll tax of 50% on discretionary bonus payments over £ 25,000: see here for HMRC guidance and the draft legislation. The Government offered several justifications for the new tax: it was necessary until remuneration practices change as a result of corporate governance and regulatory reforms; evidence that some banks are proposing bonuses that are not consistent with a prudent approach to risk; and fairness: the tax representing a quid pro quo for taxpayer support of the banking sector. 

Of particular interest elsewhere in the report are the following announcements (at paras. 3.39 and 3.58):

The FSA has been reviewing the governance and risk management of stock lending in the market. The Government welcomes this work and will work with the FSA and market participants as necessary to help develop thinking in this area.

Following the Walker Review, and the subsequent Financial Reporting Council (FRC) consultation on the Combined Code, the Government proposes the introduction of a specific governance code for building societies and other financial mutuals. The Government will also consider the introduction of a regular independent review of building societies (and other financial mutuals) adherence to the Code".

UK: building society risk management - FSA consultation on specialist sourcebook

The Financial Services Authority has published for consultation a specialist sourcebook for building societies: enhanced supervisory guidance on financial and credit risk management. This contains guidance on the systems and controls which the FSA believes are appropriate and sets out the responsibilities of building society boards in this regard.