UK Treasury Building Societies Act

On Dec. 6, UK Treasury consulted on changes to building societies act.

  • UK Treasury consulted on amending Building Societies Act 1986 (BSA 1986 (UK)).
  • Proposals relate to funding models and corporate governance requirements in sector.
  • Seeks comments on future trends that may impact building societies’ funding models.
  • BSA is the primary legislation for building societies (BS) (as mutually-owned providers of mortgages/savings products), sets out their distinctive model, legal requirements.
  • Funding Limit
  • BSA sets out restrictions on funding; generally BS are required to raise minimum 50% funding from members’ deposits in savings accounts, other sources called wholesale.
  • This limit preserves the mutual status of BS by ensuring they are at least 50% owned by their customers, mainly funded by the longer-term savings of their customers.
  • UK GVT believes minimum 50% requirement is still appropriate, but recognizes it may create challenges for BS, which banks and other financial institutions do not have.
  • Proposal is to exclude funding from liquidity insurance facilities within the Sterling Monetary Framework (SMF), from counting towards the funding limit calculation.
  • Corporate Framework
  • BS operate under a separate legal framework to companies, recognizing BS member ownership model, but separate frameworks have not been modernized at same time.
  • BSA requirements may place extra burdens on BS in comparison to companies.
  • Proposals highlight areas where modernization may reduce burdens, better align BS frameworks with that of companies, includes virtual participation at member meetings.
  • Next Steps
  • Views from all interested parties are welcome until 11:45pm on Feb. 28, 2022.
  • Dec. 9, 2022 Outcome
  • On Dec. 9, 2022, UK Treasury issued the response to the consultation on amendments.
  • Follows Chancellor Hunt Dec. 2022 Edinburgh reforms announcement, see #155889.
  • The government received five responses to the Building Societies Act consultation.
  • Most building societies responded through the Building Societies Association.
  • All consultation responses were supportive of the proposals around amendments to building societies’ funding model and corporate governance requirements.
  • Some raised the interaction between building societies and intermediated savings platform in response to requests for views on trends that may impact funding models.
  • Document outlines government’s response and next steps with regard to these areas.
  • Oct. 2023 Building Societies Act Letter
  • On Oct. 9, 2023, UKP published a letter, dated Sep. 21, 2023, from Baroness Penn to Lord Sharkey, relating to the answer that she gave on Dec. 15, 2022 to PQ HL4237 setting out which of Chancellor’s Edinburgh Reforms will be delivered by legislation.
  • The original answer stated changes to Building Societies Act 1986 would be delivered through secondary legislation only, but due to further analysis this has now changed.
  • During implementation process, the delivery of these amendments changed and the answer will state changes will be delivered via both primary and secondary legislation.
  • Changes to be made via secondary legislation are exempting deposits from SMEs with a turnover of up to £6.5mn from the funding limit calculation, as well as changes that will allow only one director in future to sign the balance sheet on behalf of the Board
  • Also, removing the retirement age provisions as stated in the 1986 Act for directors.
  • Primary legislation will be then be required for the remainder of all the other changes.
  • Baroness Penn confirmed that she had issued written Ministerial Statement on issues.
  • May 2024 Royal Assent
  • On May 24, 2024, UKP confirmed Building societies act 1986 (amendment) act 2024 has successfully passed its legislative stages and has now received royal assent.
  • Amends the 1986 Act, providing UK Treasury with the powers to make specific secondary legislation to further align the constitutional provisions in Part 2 of 1986 Act.
  • Makes amendments section 7 of 1986 Act to enable the exclusion of certain sources of funding from the building society wholesale funding limit calculation.
  • Allows option of real-time virtual member participation in building societies’ meetings.
  • Jun. 2024 UK GVT
  • On Jun. 3, 2024, UK GVT published Building societies act 1986 (amendment) act 2024, (BSA1986(A)A 2024 (UK)); in force 2 months after day of passing, ie Jul. 24, 2024.

Regulators UK GVT; UK Treasury; UKP
Entity Types Bank; BS
Reference UK Act 2024/18, 6/3/2024; PR, 5/24/2024; PR 10/9/2023; Lt 9/21/2023; PR, FS, 12/9/2022; CP, PR, 12/6/2021; ESG; Citation: BSA 1986 (UK); BSA1986(A)A 2024 (UK);
Functions Compliance; C-Suite; Financial; HR; Legal; Reporting; Risk; Treasury
Countries United Kingdom
Products Banking; Deposits
Regions EMEA
Rule Type Final
Rule Date 12/6/2021
Effective Date 7/24/2024
Rule Id 123313
Linked to N/A
Reg. Last Update 6/3/2024
Report Section UK

Last substantive update on 06/06/2024