No. 46 | Winter 2017 SOCIETY matters Moving on More success for building societies in 2017, and looking into the New Year.

Opinion Data protection Housing Interview We knew it all GDPR – Are you Could modern methods Paul Ellis celebrates along – ownership ready for the May of construction become 25 years at Ecology really does matter deadline? mainstream in UK Building Society housebuilding? pages 3 & 4 page 5 page 6 page 12 SOCIETY matters welcome

contents Hello and welcome to the winter edition of opinion 3 We knew it We knew it all along – ownership really does matter Society Matters all along data protection 5 GDPR: Are you ready? We explore ‘re-permissioning’

housing 6 Could modern methods of construction become mainstream in UK housebuilding? New home quality with modern methods of construction How to break free from the ‘housebuilding pool of stagnation’? Graham Sibley It’s the most wonderful time of the year… and not just MSP shares his thoughts because pigs in blankets are officially an acceptable older borrowers 9 breakfast – but also because it provides the opportunity Lending into retirement: An update to reflect on a busy year in which lots of progress has been made. In this, the final edition of 2017 we have well- insight 10 We catch up with the sector’s placed experts covering more topics that matter to our recently appointed CEOs sector than you can shake a candy cane at.

interview 12 fter what feels like a lifetime Paul Ellis celebrates 25 years at we now know that this is the Ecology Building Society penultimate Christmas we will enjoy as a member of the European AUnion, and that in March 2019 we will be legislation 14 taking our first steps as an independent nation: Tax evasion: the latest legislation and how deal or no deal. I hope that the UK will remain to prevent your organisation falling foul on member states’ Christmas card lists when it is all over.

overview 15 Two years on from the launch of the BSA’s Year in numbers Lending into retirement report, it is fulfilling to see the progress we have made when it comes diary 16 to meeting the needs of those who will be older borrowers at the end of their mortgage term – and that building societies continue Society Matters is a publication of to lead the way (P9). BSA Chairman Jonathan the Building Societies Association – Westhoff discussed this demographic shift the Housing Revenue Account indicates we are ISSN 1756-5928. along with the housing crisis in his speech slowly moving in the right direction for the The views expressed by authors in this at last month’s BSA Annual Lunch. nation’s underserved home searchers: whether magazine are not necessarily those of they are looking to rent or buy. the BSA. Modern methods of construction (MMC) was a hot topic on my table at the Lunch, So as we dig out our Christmas jumpers and Chief Executive: Robin Fieth so I am happy to bring you three articles mull every beverage in sight, on behalf of [email protected] on the subject from the perspectives of the everyone at the BSA I would like to wish you Editor: Amy Harland BSA, housing warranty providers NHBC and a wonderful festive season and a safe and [email protected] a Member of Scottish Parliament. P6-8. happy New Year. BSA, 6th Floor, York House, 23 Kingsway, London, WC2B 6UJ Elsewhere in housing, the take-away See you in the March edition! www.bsa.org.uk announcement from the Autumn Statement was the abolition of Stamp Duty for first-time AMY HARLAND Designed by: Whatever Design Ltd. buyers. However our data shows that this is Society Matters Editor www.whateverdesign.co.uk actually a bigger barrier for home movers than Printed by: Trident Printing, first-time buyers. Conversely, the allocation You can keep up with the BSA on Twitter www.tridentprinting.co.uk of £44bn to housing infrastructure and lifting @BSABuildingSocs

2 SOCIETY matters | WINTER 2017 SOCIETY matters opinion

– ownership We knew it really does

all along matter By ROBIN FIETH, BSA Chief Executive

We have always felt there is something special about building societies and the way they treat their customers, attributing it to “being a mutual” and recognising that our customers are also our members.

or a number of years the BSA’s six- cases I get the sense that we haven’t really ultimate custodians of an organisation’s purpose, monthly customer tracker survey understood deep down how the magic works. from which derives its strategy, business model has shown building societies scoring Maybe now we have some better insight than and culture. Like many other informed writers, consistently better than shareholder we have achieved before. Over the summer he looks back on the demutualisations of the Fowned banks on measures like “I can trust my months more than 2,400 employees from 1980s and 1990s as a period of economic provider to act in my best interests” and “I 28 building societies participated in a survey destruction that enriched a particular generation would recommend my provider to my family focusing on who they thought receives the of incumbent managers and savers, but “would and friends”. Third party surveys carried out benefit from building societies. Meanwhile, denude the country in future of wise lenders by Which? and other consumer organisations YouGov conducted a parallel survey of 1,100 along with their important culture.” consistently show that customers recognise adults working in public and privately owned great service when they get it – and that companies, the public sector and charities. While the concept of mutuality may be they get great service from businesses called very poorly understood by building society building societies. But these customers The results were presented to BSA members customers and the general public, what typically don’t understand why. ahead of the Annual Lunch on 15 November stands out loud and clear from the survey and were launched in a BSA report “Ownership is that the concept of customer-ownership As a sector, we have debated long and Matters” during NEDs’ Week earlier this is well understood among building society hard about the mutual dividend, the lack month. In a forthright foreword to the report, employees. 85% of survey respondents agreed of customer versus shareholder conflict, Will Hutton, commentator and Principal of that they would feel confident explaining the and about the customer being truly at the Hertford College at Oxford University, argues ownership structure of their building society heart of the organisation. However, in most that ownership matters because owners are the to a customer.

WINTER 2017 | SOCIETY matters 3 SOCIETY matters opinion

The fact that employees believe the This is not a surprise. It is a re-affirmation of In an increasingly competitive world of finance, respective owners of their firms are the what we knew. More importantly, the survey this is gold dust. Over the past year we have most important stakeholder group has a findings help explain the magic in a fresh spoken often about the need for building huge bearing on which values and beliefs are way. The fact the employees appreciate so societies to build on their areas of inherent the most important in the culture of their strongly who benefits from their contribution, competitive advantage and stand out with organisation. This perhaps shows most clearly propels the culture of building societies from consumers for the right reasons – as a sector in the report’s key finding. As can be seen the bottom up in a way that a Board inspired that is growing, dynamic, forward looking and in the graph below, the proportion of value culture change programme will often struggle a force for good in financial services. Being created by building societies that passes to to achieve. able to demonstrate to present and future Who are you working for?customers is materially greater than in any generations of customers that membership Organisations create value when their activities convert resources including raw materials,other businessstaff skills, form technology covered and by information the survey. In his comments at our November gathering, of a building society will bring far more value into goods and services, but who ultimately receives the value that has been created?Building society employees believe that 37% Will Hutton spoke about the “north star of and benefit to them than alternative business of the value created by their businesses is purpose” that has enabled building societies models, provides our sector with exactly the We asked people working for building societies to estimate the percentage of the valuereceived or benefit by their created customer-owners. by their Society thatAsked to outperform “non-purposed” businesses opportunities to stand out in the crowd for all went to different stakeholder groups. Separately, independent survey company YouGovthe asked same people question, working employees for other in types publically of consistently over 25 years – a reason why the right reasons. Building societies are seen organisation the same question in relation to their employer. listed companies felt that only 13% passed financial mutuals should be a conspicuous as friendly, supportive, trustworthy, welcoming to customers. pat of the UK corporate landscape far into and customer-focused. The customer These surveys give the perspective of employees, so the results are a measure of perception not a financial calculation. However, the future. treatment chart below explains clearly why. the results do show the groups for whom employees believe their organisations create value. This indicator is insightful as it points towards potential differences in organisational culture across various types of ownership. Forward, or as they currently say in France, “en marche!” The BSA asked building society employees, and YouGov asked respondents to its Omnibus survey who were in work, to what extent they agreed or disagreed that each of the stated values applied to the organisation where they worked. The proportion of benefit Customer treatment received by customers % of employees who strongly agree Customeror tend to treatmentagree that the value applies Customers The proportion of benefit % of employees who strongly agree or tend to agree that the value applies The customer-ownership of building societies is reflected clearly in these results. received by customers The proportion of benefit seen to be received by customers / members was highest amongst building society employees.

This contrasts for example with private sector companies where the employee surveyed is not an owner and far less benefit is perceived to go to customers.

Building society employees Public listed company Privately owned company (which I don’t own any part of) Privately owned company (which I own in full or part) 5 6 Public sector (e.g. NHS, police, government etc.) 3 4 Charity / Not For Profit 1 2

1. Building society employees 2. Public listed company My organisation is My organisation puts My organisation My organisation is My organisation is trustworthy customers/ members is straightforward to ethical friendly 3. Privately owned company first deal with (which I don’t own any part of)

The concept of customer-ownership is well understood among4. Privately building owned company society employees. Building Societies surveyed by BSA (which I own in full or part) Publicly listed company (owned by shareholders) surveyed by YouGov 5. Public sector Privately owned company (which I don’t own any part of) (e.g. NHS, police, government etc.) Privately owned company (which I own in full or part) 85% agreed that they would feel confident explaining the ownership structure to a customer. Public sector (e,g. NHS, police, government etc.) 6. Charity / Not For Profit Charity/Not For Profit And this ownership structure is reflected in the groups that these employees believe receive the value created by a building society’s activities. Working environment “While the concept of mutuality may be very % of employees who strongly agree or tend to agree that the value applies poorly understood by building society customers Ownership and the general public, what stands out loud matters and clear from the survey is that the concept Organisational culture in building societies

of customer-ownership is well understood Winter 2017 among building society employees.” Next steps: You can follow Robin on Twitter @bsaceo The working The working environment The working The working The working environment is encourages employees to environment is environmentYou can readis the Ownershipenvironment has Ownership matters For methodology, please see page 14. www.bsa.org.uk @BSABuildingSocs 5 supportive take responsibility respectful Mattershappy survey reportintegrity at bsa.org.uk/OwnershipMatters

10 @BSABuildingSocs www.bsa.org.uk For methodology, please see page 14. Ownership matters

4 SOCIETY matters | WINTER 2017 SOCIETY matters dataculture protection GDPR: are you ready? We explore ‘re-permissioning’ The new General Data Protection Regulation (GDPR) is By MARC MICHAELS, Director of drawing nearer, becoming enforceable on 25 May 2018. Strategy & Insight, Paragon Customer Is your company ready? Here, we explore ‘re-permissioning’. Communications

hen the new proper records that the customer “As the GDPR deadline draws closer, there is a risk of GDPR comes gave it, then you will need to get in, amongst back in touch with parts or all of individuals becoming bombarded with permission many other your customer database to secure requests and choosing to decline more than they Wresponsibilities, companies the right permissions to market would if they had been approached sooner.” will have a duty to ensure to them. they have proper consent • Understand which channels are to communicate marketing As the GDPR deadline Re-permissioning is possibly open to you, and prioritise based messages to their customers. draws closer, there is a risk the most important marketing on audience likelihood to respond. of individuals becoming campaign you will ever run, Consent needs to be freely bombarded with permission and it needs to be properly • Work out how often you want given, specific, informed, requests and choosing to decline planned, created and delivered to contact before ruling out and an unambiguous clear more than they would if they as a co-ordinated activity – further attempts. affirmative action. had been approached sooner. monitoring engagement and • Track engagement and switch reacting accordingly with channels as required. So, if your current consent These changes in regulations pre-set business rules. Simply • Reset the clock for when measures don’t meet the new present an opportunity for put, getting it right will allow consent will need refreshing GDPR definitions you will businesses to cleanse their you to continue marketing to in the future. have to refresh it – or find an customer data, re-engage, your company’s most valuable It is vital to get the messaging alternative lawful way to send and remove those who aren’t resource – your customers. right. You could vary your your communications. interested in receiving your messaging for different audiences, communications. You might wish to adopt a using dynamic content for each Your existing consent may not ‘re-permissioning cascade’ audience based on demographics, be acceptable under the new Businesses need to make it It is important to look at and using the content most GDPR in a number of ways. You easy for customers to give their re-permissioning in an relevant to your audience. will need to ask: “Was it coerced, consent. Customers are more integrated fashion and co- bundled in with something else likely to consent if they value ordinate your efforts: Next steps: in order to receive a benefit? what you are offering and trust Was it not an affirmative action you to do what you what you • Understand which audiences You can also find more blogs and such as pre-ticked boxes on promise. If they feel that you it is key to re-permission articles on GDPR and other topics a webpage or inferred from can store personal information (not all will be worth the on Paragon’s website silence?” If the answer to either securely, that you won’t pass investment), using data paragon-europe.com of those questions is ‘yes’, or it to third parties, and that analytics to profile the base Paragon’s re-permissioning the consent was obtained a you won’t bombard them in terms of demographics cascade can be found here: long time ago or you don’t have with irrelevant messages. and customer value. http://bit.ly/2itqc5F

WINTER 2017 | SOCIETY matters 5 SOCIETY matters housingxxxx Could modern methods of construction become mainstream By SARAH WILDE, Mortgage Policy in UK housebuilding? Adviser, BSA The BSA visited the Netherlands, who widely use these building techniques, to find out.

s part of the BSA’s confidence in building regulations The Netherlands draws many ago. Whilst technology corporations, ongoing work to – and their trusted assurance of parallels to the UK both in terms telecommunication companies, explore ways that could durability. Rabobank has had a of housing market pressures, the automotive and aerospace potentially solve the UK’s positive experience with MMC, and in practical factors such as industry are advancing at incredible Ahousing crisis, we headed to Almere, and believes most lenders in the the climate – important when rates, the house building industry is a city established in the 1970s just Netherlands are comfortable with assessing housing longevity. stagnant and it’s genuinely time for outside Amsterdam, to see how these build techniques. systematic change.” their mainstream housebuilding We are starting to see some differed to our own, and how “The UK’s risk-averse steps forward in this space in the The BSA will be part of the DCLG we could apply that to our own attitude stands in UK already: MMC cross-sector working group housebuilding and buying models. stark contrast to the • The Government’s 2017 looking at ways to increase uptake Housing White Paper makes of MMC and remove barriers, so We had two days with four UK Netherlands’ more clear commitments to support there is some progress being made lenders and three valuers to positive, arguably more the growth of MMC such as within our sector but we – along absorb as much information offsite manufacturing. It echoed with the wider housing industry – as possible from our European constructive approach: recommendations set out in the have a long way to go. neighbours. Olof Van Der Linden ‘if the buyer can afford BSA’s 2016 report Laying the Architects explained how much foundations for MMC Ultimately, I feel that MMC of Almere was built using it, and the valuer is certainly has a place in the UK’s • There is now a plot shop in MMC. Steel frame designs filled housebuilding repertoire alongside happy, then it makes Graven Hill, Bicester –not with concrete, as opposed to traditional building techniques such sense surely?’” dissimilar to the Kavelwinkel traditional brick-and-block, are as brick and block. MMC homes in Almere particularly popular. We then Interestingly, it appeared the have stood the test of time both visited a Kavelwinkel (or ‘plot lending focus is not on loan-to- • Legal & General has opened for the past forty years in Almere shop’) where members of the value, but on affordability. They an offsite manufacturing but also around the world in places public can go and ‘pick n mix’ certainly seem quite relaxed factory in Yorkshire such as Japan and America. It will their own plot layout and home about lending on these ‘new’ • Teesside University has launched take time and education for lenders, design with the help of on-hand technologies. The UK’s risk-averse a programme of pre and post- valuers, builders and consumers architects and legal experts. attitude stands in stark contrast graduate courses to educate on alike to truly embrace MMC, but to the Netherlands’ more positive, modern building techniques, we must start making real changes A session with Rabobank – one of arguably more constructive along with Channel 4’s George now to stand a chance of building the Netherlands’ largest mortgage approach: ‘if the buyer can afford Clarke’s company MOBI enough homes in future. lenders – highlighted that the it, and the valuer is happy, then it Netherlands face similar housing makes sense surely?’ At the time of the programme Next steps: issues to the UK: an ageing launch, George said: “The slow population and a shortage of The trip emphasised how far the and antiquated method of Head to bsa.org.uk/MMCreport homes. They explained that initial UK has to go, but also that it is building new homes is painful and, for the Laying the Foundations reservations towards MMC were very possible to bring MMC into fundamentally, we still build homes for Modern Methods of superseded by the Netherlands’ mainstream UK housebuilding. the way we did hundreds of years Construction report

6 SOCIETY matters | WINTER 2017 SOCIETY matters housing New home quality with modern methods of construction It is increasingly clear that housing output at a time of declining availability of skills requires ever more innovation by the house-building industry and greater use of modern methods of construction (MMC). As the Farmer Review and the Housing White Paper stress, without a change to the status quo, the prospects of making real progress in By GRAHAM SIBLEY, NHBC Market tackling the UK’s housing need are severely limited. Development Manager

t NHBC we are witnessing an upsurge in interest in offsite construction, with Aincreasing numbers of systems and components being put forward to us for assessment against the NHBC Standards. Such reviews are essential, to be assured that homes and their component parts are designed, manufactured and constructed to consistently meet performance standards.

It is an established expectation amongst homeowners, landlords, investors and mortgage companies that new homes will last a very long time. Reflecting this expectation, NHBC explicitly requires a life of 60 years for the structure. This means that materials and components need to be selected and assembled carefully so that a 60 year lifespan can be achieved in reality, with developers and contractors to “As long as these for at least a 60-year life, and the construction of the finished help ensure that homes built assessed the transport, storage and home having the durability using these components are of standards are met, integration into the finished home and resilience to withstand the the same finished standard as NHBC will provide the against the technical standards, we vagaries of the UK climate. In traditionally built homes. will provide the same warranty as practice, homes designed for 60 same level of warranty we would on a traditionally built years can be expected to last well As the leading home warranty and insurance on new home. As long as these standards beyond that time. and insurance provider and are met, NHBC will provide standard-setter for UK house- homes whatever their the same level of warranty and The key question we are looking building, NHBC’s warranty and construction.” insurance on new homes whatever to answer for investors and insurance products cover around their construction. lenders in particular is whether 80% of new homes built in the Data collected from our on-site we can provide insurance on the UK and currently protect over 1.4 inspections and claims is constantly We see MMC as an important finished home, rather than simply million homes across the private, analysed and fed back to facilitate component in delivering more assurance that the components affordable and rental sectors. continuous improvement and homes, quicker, and to a high are robust and manufactured to a updating of NHBC Standards, which quality standard, and will continue consistent quality. Over time, we have seen a range ultimately benefits homebuyers. to work with manufacturers and of systems and components This “virtuous circle” enables NHBC builders to ensure a quality product Investors and lenders want to coming to market – some more to evolve house-building Standards that will stand the test of time. know that homes they potentially successful than others. We have to accommodate emerging issues invest in or provide mortgages witnessed unforeseen issues with and new methods. on will be of sufficient quality, finished homes and we learn Next steps: so NHBC is working very lessons from the issues we view Once NHBC has reviewed the For more information on the closely with off-site component during inspections on site and design and manufacturing quality NHBC’s Buildmark warranties, manufacturers, architects, from claims for structural defects. of components against the need visit nhbc.co.uk

WINTER 2017 | SOCIETY matters 7 SOCIETY matters housing

How to break free from the ‘housebuilding pool of stagnation’? Reduced emissions, a safer working environment, less wastage and speedier

By GRAHAM SIMPSON, build times. Sound too good to be true? You might think that if this option Member of Scottish Parliament (MSP) for house building was available we would grab it and run with it.

owever, despite this being a This includes single-storey, insulated and One of the aims of the Planning Bill should currently viable option, to build within a community. The availability of be to produce a slicker – and fairer – planning en masse at faster delivery times, suitable single-storey housing for an ageing system. here in Scotland we are sitting in a population is also on the cusp of crisis. And Hhousebuilding pool of stagnation. MMC can provide the design and speed of And the Warm Homes Bill should be spelling delivery to solve the crisis before it truly out the standards that builders should be I have visited off-site housebuilders in hits us. constructing to. Scotland, and the common rhetoric is that there is no ‘top-down’ support for this In the coming months, the Scottish Modern methods of construction are a way in innovative industry, little consumer knowledge Government will publish draft legislation which we can deliver more homes and better of it and a skills gap which is near a cliff edge. including the Warm Homes Bill and the homes. Planning Bill. We have facilities to build off-site but they Government should be promoting this and are operating at under half capacity because “Government should be backing it. They should be trying to get the big there is not enough demand, whilst house builders on board because, ultimately, they are building across Scotland sits at a tiny 16,000 promoting this and backing it. the ones who will deliver most of the homes homes per year – a far cry from the Scottish They should be trying to get the we need. Government’s target to build 35,000 homes per year. big builders on board because, Mortgage lenders can do their bit too though. ultimately, they are the ones who Yet this target would be much easier to I’ve had a couple of meetings with the achieve if the focus was shared between will deliver most of the homes Building Societies Association about this. It is traditional – i.e. bricks and mortar – and we need. Mortgage lenders can encouraging to see the work that they have modern methods of construction (MMC). do their bit too though.” already done in this space; particularly their 2016 report Laying the foundations for MMC The UK Government introduced the Homes with some clear recommendations, as well as Building Fund, which is providing £3 billion, their recent visit to the Netherlands to explore with smaller builders and “innovative MMC with lenders and valuers. However, this schemes” invited to apply. Of course, housing alone is not enough – I believe it is up to all is a devolved matter in Scotland, and areas of the housing industry to push and innovative schemes aren’t given the same actively promote MMC in this way. level of financial support at present. Funding sites developed by MMC firms could Not only does MMC provide a be one way to show this support – quicker solution, the quality of and I believe Scotland would be insulation can produce a home that a great place to start. doesn’t even need central heating – can you imagine not having to pay I suppose the key message is that those bills every month? it is a collaborative approach that’s needed. I believe that it isn’t useful to just MMC can provide solutions to wait for government: Because wait for many of our modern problems government and you could wait for including climate change and a long time. an ageing population. Not only do we not have enough houses, we don’t have suitable Next steps: homes for our ageing population. You can follow Graham on Twitter @GrahamSMSP We need innovation to design and build suitable – and attractive – homes for people who are now living much longer.

8 SOCIETY matters | WINTER 2017 SOCIETY matters older borrowers

How to break free from the Lending into retirement: an update Committed readers of Society Matters will know that back in the ‘housebuilding pool of stagnation’? Summer 2015 edition I predicted that lending into and in retirement would move from niche lending to mainstream in the years to come. Not one to let a wager go unfulfilled, the BSA released a 2017 Lending into retirement update at our November Annual Lunch, By CHARLIE BLAGBROUGH, which delves into the trends over the past couple of years. Policy Officer, BSA

he main takeaway is that lending to older borrowers has increased both in total number of mortgages Tand as a proportion of building societies’ lending. Comparing the first half of 2017 with two years earlier, there has been a 45% increase in the number of mortgages building societies sold which will mature when the borrower is 65 or older – just before the BSA launched its 2015 interim report on Lending into retirement, which led to a number of building societies raising or removing their age limits.

Across the sector, this means around 40% of building society mortgage borrowers will be over the age of 65 when their loan matures, up from around a Nationwide became the first high- (RIO) mortgages. The FCA providing advisors who are also third. The bulk of these are set street lender to go back into the opened the door wider to these trained in equity release. to mature before the borrower equity release market and Family in a consultation earlier in the reaches age 70. Building Society’s Retirement autumn, published just before the Ultimately building societies Lifestyle Booster product won Occasional Paper on an Ageing continue to lead the way in At the older end of the scale, the Mortgage Finance Gazette Population and Financial Services. innovating for the needs of our there has been a 162% increase innovation award. These are just Our view is that these products ageing population while keeping in mortgages maturing between two examples of many around are an important bridge between consumer protection at heart. ages 79-84 over the same period. our sector. the standard residential market While the absolute numbers and lifetime mortgage space. Next steps: involved are small – and we “While the absolute Read the BSA’s Lending into wouldn’t want them to become If the right consumer protections retirement update at a significant part of the market – numbers involved are are built in, then why shouldn’t bsa.org.uk/LIR2017 this shows that there is demand small – and we wouldn’t a borrower with sufficient from some credit-worthy older retirement income to pay the borrowers to take a mortgage want them to become interest on their mortgage be into their eighties. a significant part of the able to opt to repay the capital market – this shows from housing equity? Many older Whichever of these statistics you borrowers have a secure income choose to focus on, the general that there is demand stream from a defined benefit trend is inescapable. Older people from some credit- pension or annuity. are both becoming a larger part of the customer base, and a worthy older borrowers It won’t be the right option for Lending into greater percentage of them are Retirement to take a mortgage everyone and most people will 2017 Update taking a mortgage into their In 2015 the BSA published its first report still want to have their mortgage on Lending into retirement. retirement years. into their eighties.” This update shows how the market has paid off. Yet the couple of building developed over the two years since. With housing market affordability societies who already offer RIO pressures, an ageing population and longer mortgage terms, older borrowers Even before the BSA started What can we expect in 2018? mortgages go above and beyond are becoming a larger part of the market. We predict that the peaks of these work in this area, a number of demographic and economic trends The BSA expects a number of even the standards proposed by are yet to come.

building societies knew this and To find out more about how building societies societies will be looking closely the FCA, for example by requiring do things differently, visit bsa.org.uk were taking action. More recently, at Retirement Interest-Only legal advice in the process or

WINTER 2017 | SOCIETY matters 9 SOCIETY matters insight We catch up with the sector’s recently appointed CEOs It is interesting to learn how senior leaders come to our sector: what was the initial attraction and why do people tend to stick around or return? With that in mind, we spoke to some of the newest building society CEOs –who all took up their role in 2017.

Will Carroll Monmouthshire Building Society

size from £450 million to over I am a strong believer in society brand, presents a great £1 billion. mutuality and believe that the opportunity to gain competitive mutual model creates strong advantage. This enables more The consistently successful results ‘organisational personality’ that is people to enjoy the benefits that of the Society have been achieved difficult to replicate, particularly mutuality offers. during what is probably the most within the communities in which testing time in banking for a societies operate. We face some demanding generation or more. challenges in order to successfully The changing face of the financial compete and grow in the digital However, in light of the services industry has led to a age. I am extremely proud to be significant changes in the macro- shift in power from provider to given the opportunity to lead level environment in which we consumer, with expectations Monmouthshire Building Society operate, we are reviewing our rising. The successful development through the next stage of its “In the 13 years I have been at strategy to build on the strong of flexible, omni-channel, journey and I am confident that Monmouthshire Building Society, foundations already in place to customer-centric propositions with the great team I have around I have witnessed great change. ensure the Society’s continued combined with the key me, we can achieve our vision and Amonst other things the Society future success as part of a vibrant differentiator of service quality ensure that the Society prospers has more than doubled its asset building society sector. associated with the building for many years to come.”

Chris Harrison Furness Building Society

across Europe, I have a clear one of my first tasks as Furness’ range of causes that matter to vision of how to take us forward. CEO was to start a change our customers. I don’t want to programme to help move us lose that personal touch but we The Society’s strong brand and forward. We’ve already made also have to be able to compete reputation appealed to me and lots of small improvements in the digital world, where since joining I have been looking to our mortgage process and consumers simply want a quick at how we can grow and build on the support we provide to and easy-to-use service. our current membership, as well brokers, resulting in much as driving the Society’s products quicker turnarounds and more There’s a lot of hard work and services into the digital age. efficient processes – but this ahead and I want to make sure is just the beginning. everyone is engaged, motivated Furness Building Society, and and developed to their full the sector as a whole, needs Furness has always prided itself potential. There is a great team “I was delighted to become CEO to drive change to build a on great customer service, and here and as we move forward of Furness Building Society in faster, more digital and more I’m proud of the role we play in we will ensure our long term April 2017 and after running a effective journey for brokers the local community by making success and prosperity for number of large organisations and customers alike. As such, charitable donations to a wide generations to come.”

10 SOCIETY matters | WINTER 2017 SOCIETY matters insight We catch up with the sector’s recently appointed CEOs

Simon Beresford Teachers Building Society

a privilege to be appointed Chief and data capability; and really charities. Government is seeking Executive of Teachers Building landing our message with more to help further in this area and Society from February 2017. Our teachers across the country. we are exploring opportunities to mission is to help more teachers innovate here, as well as already save for and ultimately own Our core challenges are to keep being active supporters of existing their homes. improving their service experience affordable housing schemes. and to ensure more teachers We’re proud to be a modern know about us and benefit from Having worked in two large firms, mutual with member service ‘membership’. To support this drive I was attracted by the challenge at our core and have made real we’re trying some new initiatives, of joining a leadership team in strides in the last two years to including a Teacher Board made a smaller business with a real bring our platform into the twenty up of educational professionals mission – helping key workers, first century. There is much still to help shape our future. We’re like teachers, to save to buy a “I am really excited to be back in to do on this journey; including also building deeper commercial home near where they teach our the building society sector after continuing to invest in service relationships with key brokers children. That sense of purpose six years in the City, and it was excellence, in our infrastructure and local schools, businesses and feels right to me!”

Karl Elliott Beverley Building Society

we continue to be relevant to The Beverley’s membership is Our social purpose demands that our customers. mainly regional to where we we make a positive difference operate and I’m convinced that to the lives of our members, I have been quickly immersed in our future success is grounded in their families and their local the world of Treasury & Credit, the core purpose that originally communities – we are not here experienced our first regulator defined us; to help those just to make money. visit and read countless risk & underserved by the market gain governance papers – all essential financial security through home There will always be change; in carrying out my new role. ownership, funded by savings regulation, competition and from across our community. technology won’t stand still and It is essential to be well our customers’ needs will continue governed, managed and With a small team, we keep it to evolve, just as they have financed – but this alone doesn’t simple with good value products, throughout the past 150 years. “It’s been a pleasure to spend my define our success. It can tend an emphasis on customer care first three months at Beverley to dominate the day job, but and a determination to consider Amidst that change, I believe Building Society meeting people is only half of what it means individual’s circumstances on their our long-term sustainability and from across the sector, listening to be a successful, thriving merits. We want to build long-term success will be dependent on to their views and ideas on how building society. value, rather than short-term profit. remaining true to our purpose.

WINTER 2017 | SOCIETY matters 11 SOCIETY matters interview Paul Ellis celebrates 25 years at Ecology Building Society 2017 marks Paul Ellis’ 25th year at the Ecology – and his 22nd as Chief Executive. Here we learn a little more about Paul’s experiences in the sector and Ecology’s story and focus. © Charlotte Graham

How did you first get ideas they encompass makes every day about sustainable building. Unfortunately, involved with Ecology? an opportunity to learn: from housing recent Government policy changes have permanently taken out of speculation, new reversed the trend towards improving I followed the genesis of an idea to create a low-carbon building techniques, woodland building standards – particularly when it new building society which would address creation for biodiversity and organic comes to energy efficiency. This runs counter sustainability issues through one of the horticulture, and more. to the approach in other developed countries eventual founders, Jean Lambert, who is now a so I expect this to be a blip. In the short Green MEP. We were both part of the growing term, I remain concerned that Brexit may environmental awareness of the late 1970s What is the highlight of your mean important policy gains on support for driven by ideas of low-impact lifestyles, and last 25 years at Ecology? What energy efficiency and a low-carbon economy books such as Rachel Carson’s “Silent Spring”. are you most proud of? will be lost. The idea of using personal financial decisions There have been many successes over the to influence the economy for better social and years: our eco-build West Yorkshire office being What’s been your biggest challenge environmental outcomes, as with wider ethical recognised as one of the ten most sustainable consumerism, resonated strongly with me. “bank” headquarters in Europe. Our role or opportunity at Ecology? In the early days, I used my IT background to in driving the uptake of the Passivhaus Since the financial crisis, it has felt that we help the Society computerise. low-energy concept in Europe as founding have been subject to a wave of regulation of members of the Passivhaus Trust. Being told by Tsunami-like proportions. We recognise it is Did you plan to stay with a leading commentator that our lending was the price of doing business, so we are investing Ecology for decades, if not, what instrumental in kick-starting the demand for in our people, systems and data capabilities made you happy to remain? green building products in the UK. However, so we can continue to meet the needs of our I’m particularly proud of our recent MFG members while satisfying regulators’ demands. My early involvement in Ecology was a side- Product Innovation award for our development interest, a form of activism, which evolved into of a mortgage solution for homes where the I’m also excited by the opportunity presented consultancy and then full-time employment sale price is permanently pegged to local by the rise of fintech, which is transforming dealing with IT and Marketing, before I got incomes, thus countering the negative effects financial services and creating new channels the opportunity to become CEO. It certainly of house price inflation in the overheated for organisations to engage with their wasn’t a conscious decision to stay this London housing market. This is an example customers. We are looking at ways that we can long, but the idea of values-based financial of a building society creatively delivering harness the power of technology to facilitate institutions gained traction, so there was a solution to meet a specific societal need, that contact and respond to a new generation the sense of being part of an exciting new which I believe is what our movement is for. of customer, while remaining accessible to all. movement. I have to admit that it has become a labour of love. Ecology has a focus on What do you feel we could learn What is your favourite aspect ‘greener’ homes – how far has from our European neighbours of being Ecology’s CEO? this area come in the past 25 when it comes to housing, and has anything you’ve learned made it I love meeting our members and customers. years and where do you see They are inspiring people who have a positive it in another 25 years? into Ecology’s policy or culture? vision for society and want to work for In the early days, we were dealing with Since mortgage markets and legal structures good outcomes for all rather than the few. pioneers. We now see a wider pool of differ widely between jurisdictions, I think The variety of projects, and the innovative potential borrowers who are more informed we should always be careful about reading

12 SOCIETY matters | WINTER 2017 SOCIETY matters interview

Typical working day

8.15am Leave home in the north of Leeds to drive to work – I’m fortunately going against most of the traffic. Listen to the Today programme, where I hear more about the latest difficulties with implementing Brexit.

9am Arrive at Ecology’s eco-built offices in Silsden and plug in my Toyota Prius to our charging point.

9.30am Weekly Executive meeting with the Finance Director and Chief Operating Officer.

10am Meeting with our IT Manager to discuss the planning for the latest phase of our digital strategy.

Ecology Building Society’s eco-built office in Silsden, West Yorkshire 11am I catch-up on a few emails and then I meet with Ecology’s External Affairs Manager to over to the UK context. That mistake What do you think is the most look at our plans for our next AGM. The was made pre-financial crisis with policy important focus for financial focus will be on community-led housing. It attempts at importing US energy efficiency services in the next five years? takes place in a different location each year mortgage concepts. to ensure as many members as possible I believe that financial services have a critical have the opportunity to attend. Nevertheless, there tends to be a more role in helping to tackle climate change. We interventionist/enabling approach from are already seeing the European Parliament 1.15pm many of our European neighbours, with good considering capital reliefs to incentivise For lunch I’ve brought some leftovers from policy outcomes. In Germany, community-led sustainable finance. A concerted response is last night’s evening meal into the office. I’ll housing plays a much bigger part in housing essential to the maintenance of a sustainable also pick some of the last raspberries from provision than is yet the case in the UK. Here, economy, environment and the democratic the Ecology garden. This year’s warm and there is openness to the role of democratically processes that underpin the good society. For wet summer resulted in a bumper crop of organised baugruppe housing co-operatives a start, in the UK, we have hardly begun the vegetables and fruit. task of retrofitting 26 million homes to help leading to a greater role in tackling issues In the kitchen I bump into our Risk and of affordability. us meet our Paris targets and lenders will have an important part to play, to deliver this. Ethics Manager who tells me that our Fair Tax Mark accreditation has just been “In the early days, we were If you had one wish for renewed for another year. dealing with pioneers. We the future of the housing 2pm now see a wider pool of industry, what would it be? I get to see the final draft of our latest potential borrowers who I’d like environmental issues to become members’ newsletter. It’s looking good more of a focus, including the wider and just needs a few tweaks. are more informed about sustainability of housing developments. 3pm Energy efficiency should be engineered into sustainable building.” It’s time for me to read through the latest housing development so it becomes more source book report in preparation for my of a manufacturing process – which means The Netherlands shows that regulatory telephone call with the PRA later this off-site – and that modern methods of recognition of the influence of energy-saving afternoon. construction become traditional methods measures on mortgage risk can lead to them of construction, and commonplace. being included as an option in mainstream 5pm mortgage products: therefore maximum The call with the PRA has gone well. There LTVs are mandated by law and are higher Finally, what do you think are a few things to follow-up but it’s clear for energy-efficient properties. your legacy will be? that they now have a better understanding When it’s time for me to move on, I of what makes us different. Ecology has lent to housing co-operatives would hope that our commitment to the 7.30pm since inception, and encouraged the use of environment and fair finance is sufficiently After catching up on my French homework new low-embodied energy materials. We engrained in our statutes, culture and processes for my night school course, I’ll have to have been encouraged by cities like Almere to that it is naturally carried on by the next start preparing the accounts for Friends of make a stronger push to encourage off-site generation of colleagues. By sticking to our Gledhow Valley Woods where I’m treasurer. construction and support adaptable housing – core mission and purpose, they will be able to something our members have raised with us. maintain Ecology’s continued resilient success.

WINTER 2017 | SOCIETY matters 13 SOCIETY matters legislation Tax evasion: the latest legislation and how to prevent your organisation falling foul

By JAMES SISWICK, The Criminal Finances Act makes failing to prevent the facilitation of tax Partner – Risk Consulting & RICHARD LITTLE, evasion a corporate criminal offence. This legislation came into effect on the Partner – Tax, KPMG 30 September 2017. Here we explore what that means for building societies, and steps they can take to prevent being convicted of this new offence.

There are three stages to the offence: • Stage 1 is the criminal tax evasion by a taxpayer under existing law. • Stage 2 is the criminal facilitation of TAX EVASION this offence by an “Associated Person” i.e. an employee or anyone else who performs services for or on behalf of the building society. • Stage 3 arises if the Society fails to prevent its representative from committing the criminal act at Stage 2.

The only defence a Society would have is that it had ‘reasonable procedures’ in place to prevent the Stage 2 action.

Without having developed any reasonable procedures defence, Societies will risk being found guilty of a strict liability offence and an unlimited fine. HMRC is not expecting ‘paranoid’ procedures however, it is expecting Societies to implement reasonable procedures following a detailed risk assessment.

Steps to assist in the development of including business support functions. Make sure you deliver your implementation Make sure the scope is also wide enough project in a reasonable timeframe. reasonable procedures: to include a consideration of who your • Monitoring: After undertaking the above, • Initiation: It is first important to Associated Persons might be. The six pillars monitoring will be required to confirm understand the legislation and guidance in the final HMRC guidance include ensuring your controls and procedures are operating which should help identify the key people you have appropriate due diligence in effectively and relevant changes are accounted within your Society who need to be relation to associated persons, so do not for. You need to be alert to changes in the involved. This legislation is driven by the restrict your efforts to your own employees. guidance and learn from experience including government’s desire to clamp down on tax • Implementation: Using the risk assessment, any legal cases so that you can show evasion but is fundamentally about business map out the procedures you will need in continuous improvement in your systems. conduct and therefore you should consider order to meet the statutory test. Undertake financial crime and/or compliance and who a gap analysis to identify where you need Ultimately, the test will be whether you can should lead the project, working alongside to introduce new controls or enhancements demonstrate that your procedures were your tax team. The project team will have to existing ones, such as your existing KYC reasonable at a particular date. So, at each of personnel drawn from all relevant functions. and anti-money laundering controls and the stages which have been set out, maintain an • Mobilisation: You should conduct a risk procedures. Crosscheck your plans against accessible record of everything you do and why. assessment. This is critical; if this is not HMRC’s and UK Finance’s CCO guidance, done well, you will have no chance of plus HMRC’s Code of Practice on Taxation Next steps: showing that your procedures meet the for Banks. You will need to implement For more information or if you have any statutory test of being ‘reasonable in all required system changes, policy and questions on the Criminal Finances Act, the circumstances’. This assessment should procedure updates as well as developing please contact James on 0207 311 6514 review the entire business operations, and delivering relevant staff training. or Richard on 0113 231 3936.

14 SOCIETY matters | WINTER 2017 SOCIETY matters overview BSA members in numbers: 2017 2017 was another great year for building societies and credit unions. Here’s some of the numbers that build the bigger picture.

BSA members across the UK. 111,000 44 building first-time buyer societies and mortgages 4 credit approved by unions building societies 48 in the last year 42,640 the number of people BSA Building society savers received members employ 1,550 59,668 £380 mortgages sold which will million mature when a borrower is 65+ (H1 2017) Up more interest in the first half of 2017 than 45% from they would have received from big banks There are c.1,550 BSA member H1 2015 branches across the UK

of building Building societies approved society members would 82 recommend 23 their building % society to million friends/ family – compared with people are members of a % 69% of bank building society… that’s a 30 of all mortgages across the customers third of the population! market in the last year

Key political challenges for the sector in 2017: For people, not shareholders. Brexit: This continues to pose challenges for the political and economic Our 44 building societies 1 landscape, which will naturally have an impact on the building society and 4 credit unions work for sector. There are also opportunities for the sector after Brexit relating to more proportionate regulation. people, not shareholders. Supporting housebuilding: The Government continues to increase They come in multiple shapes 2 its targets for housebuilding, but it needs to deliver. The sector can and sizes but are all experts play its role in supporting housebuilding by lending on a wider variety on mortgages and savings. of construction types, including self and custom build and modern methods of construction. Find out more here: bsa.org.uk/forpeople Political uncertainty: The uncertain nature of politics at the moment 3 is requiring the sector to keep its political engagement under review. Next steps: Clean Growth Strategy: The agenda to use housing to help the 4 decarbonisation agenda continues and this will require more Follow @BSABuildingSocs on Twitter to keep up to date engagement from the sector over the coming year. with the BSA, our members and the wider sector.

WINTER 2017 | SOCIETY matters 15 SOCIETY matters diary

Dates for your diary

Knowledge sharing and educational events for building societies. Many of our events are also open to other financial service providers.

Mortgage Underwriting Treasury risk management Mortgage brokers seminar Dates to be arranged subject to demand, 8 February 2018, London 22 February 2018, London London The objective of this course is to provide Keeping track of developments in the broker In recent years the recognised career path participants with an overview of the financial world is becoming increasingly challenging, to mortgage underwriter has changed and balance sheet risks a building society faces with new business models and cutting- substantially, partly due to the changing as a consequence of being a mortgage lender edge technology appearing all the time. nature of mortgage advice. This brand new and how these risks are managed by the How building societies respond to these intensive two-day course has been designed to treasury function. challenges will be just as important as fully equip underwriters with the knowledge We will consider key risks such as liquidity understanding the implications of a whole required to carry out their role effectively. risk, credit risk, market risk and interest rate raft of regulatory changes over the past risk within the new regulatory framework, and year, with yet more to come. On completion of this programme delegates examine the role of board governance and the will be fully conversant with the full range Open to: BSA members and Associate members relevant committees, focusing on the Asset of skills to underwrite mortgages effectively, £350 per delegate (VAT exempt) and Liabilities Committee. Additionally, we will while ensuring that customers’ needs are met. discuss ‘best in class’ management information Non-member organisations £450 per delegate Open to: BSA members and Associate members and how to read and understand key reports. (VAT exempt) Members/Associates: £895 (VAT exempt) The course is aimed at those with some treasury The cost includes course documentation, experience, or those wishing to improve their lunch and refreshments Cost includes course documentation, lunch treasury risk understanding. and refreshments Open to: BSA members and Associate members: £490 per delegate (VAT exempt) BSA Annual Conference 2018 23 & 24 May 2018, Manchester BSA Associates meeting Non-members: £590 per delegate (VAT exempt) 18 January 2018, London The cost includes course documentation, lunch Our annual conference is the biggest event in and refreshments our calendar attracting over 600 delegates to The objective of this free-to-attend meeting network and hear about the key issues facing is to help BSA Associate members understand our sector through thought-leading keynotes, what it is like to work with building societies, discussions, exhibition floor and social events. the business conditions facing mutuals and Crisis PR in the digital age how they are reacting to market changes. 23 January 2018, London In addition to the core programme we are planning fringe events including a meeting Free to attend for BSA Associate members The reputation of your society or credit union for CEOs and a networking dinner for is one of your major assets. Your reputation NEDs. Check back here early in 2018 for affects whether you retain existing members full programme details or joining our evens and recruit new ones. When an issue arises or a mailing list and we’ll keep you informed. crisis hits, the way that you as communicators handle it can make the difference between enhancing your society’s reputation and losing it. Social media adds an extra dimension, in how far and how fast stories spread. Open to: BSA members and Associate members £550 per delegate (VAT exempt) The cost includes course documentation, lunch and refreshments

Next steps: For more information or to register to attend, visit bsa.org.uk/events

16 SOCIETY matters | WINTER 2017