speak out BSA members market moving: Getting thehousing Financial Mutuals The Associationof Martin Shaw: Consumer Panel Sue Lewis,Chairofthe Five minuteswith… Plus Lord KennedyofSouthwark,LabourPeer Robert Buckland,ConservativeMPforSouthSwindon on mutuality Political perspectives Policy Special No. 29 Autumn 2013

Leverage Ratios

for Lending

Self Build

Funding

welcome

HELLO AND WELCOME TO THE AUTUMN EDITION OF » spotlight on 3 SUE LEWIS, CHAIR OF SOCIETY MATTERS. THE FINANCIAL SERVICES CONSUMER PANEL We also have news from the mutual sector itself. Our members inform us about what it is they » news 4 are doing to get the housing market moving, FUNDING FOR LENDING: plus Cumberland answers a ONE YEAR ON few questions on how they deal with vulnerable consumers, an issue well documented in the » demistifying 5 media as of late. THE LEVERAGE RATIO - We are also pleased to welcome contributions SILVER BULLET OR SNAKE OIL? from Parliamentarians, including MP for South Swindon Robert Buckland and Labour Peer » policy special Lord Kennedy of Southwark. They provide us PARLIAMENTARY PERSPECTIVES with some insights on the world of mutuality ON MUTUALITY from a Parliamentary perspective, plus give us something to think about for the future. Group ROBERT BUCKLAND, MP 6 Chief Executive of and LORD KENNEDY OF BSA Chairman David Cutter has also responded SOUTHWARK 7 to these comments offering his thoughts on the changing world of financial services. RESPONSE FROM DAVID CUTTER, Our spotlight this time is on the new Chair BSA CHAIRMAN 8 of the Financial Services Consumer Panel, I AM DELIGHTED THAT WE HAVE Sue Lewis who gives us a bit of background BEEN SO BUSY, IT HAS GIVEN 9 about the work they are doing to support the » overview US THE OPPORTUNITY TO DEMONSTRATING THE Financial Conduct Authority. Sue also lets us FURTHER PROMOTE THE GOOD MUTUAL ADVANTAGE know what she plans to bring to the table to WORK THAT THE MUTUAL ensure that good consumer outcomes are at » community 10 SECTOR IS DOING... the forefront of business. PROTECTING VULNERABLE We also thank Martin Shaw Chief ADULTS Executive of the Association of Financial They say that the summer months are supposed Mutuals and Anna-Marie DeSouza, Editor » interview 11 to quieten down. I don’t know who ‘they’ are, of Build It magazine for taking the time SELF BUILD MORTGAGES but here at the BSA we have had no such lull. to inform us about their specialist subject I am delighted that we have been so busy, it has areas. We have also received an interesting » innovation 12 given us the opportunity to further promote piece from Marketing and CSR Officer, MUTUALS: MOVING the good work that the mutual sector is doing, Joanne Palfrey who gives us an insight THE MARKET plus get involved in some brilliant campaigns, into the world of work from an Ipswich important lobbying and take part in some Building Society perspective. 14 excellent debates. » opinion Enjoy THE IPSWICH & ME This edition of Society Matters brings together Victoria Bamber some updates from our own staff over issues very Society Matters Editor » news 15 much in the public eye, such as the Funding for NEW ASSOCIATES Lending Scheme and Leverage Ratios. diary 16 » Society Matters is a publication of the Building Societies Association - ISSN 1756-5928. BSA EVENTS The views expressed by authors in this magazine are not necessarily those of the Association. Director-General Adrian Coles [email protected] Editor Victoria Bamber [email protected] BSA, 6th Floor, York House, 23 Kingsway, London, WC2B 6UJ www.bsa.org.uk Designed by Solo, Mariners Wharf, 8 Holyrood Street, London, SE1 2El www.solodigital.co.uk

2 spotlight on

SUE LEWIS CHAIR OF THE FINANCIAL SERVICES CONSUMER PANEL

ENSURING THAT THE VOICE OF THE CONSUMER IS HEARD IN THE FINANCIAL SERVICES SECTOR HAS NEVER BEEN OF MORE IMPORTANCE. NOW, THE NEW CHAIR OF THE FINANCIAL SERVICES CONSUMER PANEL SUE LEWIS, TELLS SOCIETY MATTERS HOW THEY ADVISE AND CHALLENGE THE FINANCIAL CONDUCT AUTHORITY AS REGULATORY POLICY IS DEVELOPED.

products and ended up in serious Finish this sentence. The most debt as a result. Professionally, I important financial lesson I have led a number of financial services learnt is... policy areas in the Treasury; seeing Pay attention. It is very dull, but a few Ministers’ postbags was a real minutes shopping around, checking eye-opener. My current Board your savings rate hasn’t dropped to roles are all related to financial zero, paying off credit cards on time Given how recently the current And we shouldn’t forget the services: the CII Professional or making sure you have funds to regulatory system came into Prudential Regulatory Authority Standards Board; Personal Finance cover direct debits can save a lot of being, how do you plan to use (PRA), which, regrettably, has no Education Group (pfeg) and money. I would rather have that cash your position as Chair of the Consumer Panel despite its impact StepChange debt charity. I also than give it to my bank. Panel in ensuring that good on consumers. work internationally on financial If you were to be invited to be consumer outcomes are at education. So I know a little bit Do you think there is a role for Prime Minister for the day, what the forefront of the Financial about a lot; and have developed the Panel to play in working would be top of your agenda? Conduct Authority’s business? a passion for doing things which with industry to improve Financial education for every child. Making markets work better is help people get a better deal from consumer outcomes, outside of Pfeg got financial education into the very different from the FCA’s financial services and avoid serious the formal requirements of the secondary curriculum, I would extend remit. The early signs are good, problems. new regulatory regime? but I will be keeping the pressure this to primary schools and make it on the regulator to match its Yes. I do not believe that firms get What are your key policy happen in every school. Young people tough words with fast, transparent, out of bed intent on ripping-off priorities for 2013/14 and why? often need to manage greater risk tough actions. their customers. Yet people feel I’ve inherited a packed agenda, and financial complexity than their cheated and irritated by a myriad and we won’t be looking at new parents did. Money skills are essential As the newly appointed Chair of of practices: hard selling ‘add- priorities until the autumn. to help them do this. the Financial Services Consumer ons’; ‘teaser’ rates; treating new I expect we will focus on the You’re stranded on a desert island. Panel, what role do you see for customers better than loyal ones; FCA’s new responsibilities: for What book, luxury item and the Panel in representing the the barriers to making insurance competition, including access, and musical track could you not live interests of consumers more claims. I would really like to debate consumer credit. I’m interested in without? broadly, even beyond the remit with the industry why they find the winners and losers from cross- A big travel guide to the world. of the FCA? it so hard to treat customers in subsidies. I would also like to see A hamper of everyday essentials: red The day job is to advise the FCA, a straightforward way. Mutuals better joining-up with the Money wine, electronic cigarettes, olive oil, but we also need the voice of the often score highly on customer Advice Service. Regulation alone lemons, Greek yoghourt, Java coffee, consumer to be heard in the wider satisfaction - maybe there are some won’t deliver well-functioning dark chocolate. I would listen to In regulatory debate. This means lessons to be learned here. markets: we also need consumers Paradisum from Faure’s Requiem. influencing Government to get exercising informed choice. How do you think your past the right legislative framework, roles and experiences will help as the Panel did with the 2012 with your new position as Chair Financial Services Act. We also of the Consumer Panel? need to be active in the EU, For more information about the Financial Services Consumer which generates so much of our My parents were unbanked. I’ve Panel visit www.fs-cp.org.uk financial services legislation. used and abused a lot of financial

3 news

FUNDING FOR LENDING: ONE YEAR ON

AFTER CELEBRATING ITS ONE YEAR their balance sheets, partly to ANNIVERSARY, JOE THOMPSON, BSA BUSINESS comply with new regulatory ECONOMIST, ANALYSES THE IMPACT THE standards. Rather than use the cheap funding available via the FLS GOVERNMENT’S FUNDING FOR LENDING to expanding their lending they SCHEME HAS HAD ON SAVERS, BORROWERS have used it to strengthen their AND THE WIDER UK ECONOMY. capital positions. In the long term this should help to put banks in a better position to lend, but it was The first of August marked one not the primary stated outcome year since the Bank of England’s hoped for by the Bank. However, Funding for Lending Scheme it might have been the case that (FLS) opened to banks and without the FLS the reduction in building societies. This scheme was lending would have been much launched as a direct policy response more severe. to the threat of elevated bank In April this year the Bank extended funding costs to the UK economy. the scheme by 12 months and The objectives of the scheme were FLS eligible lending 30 June 2012 - 31 March 2013 provided further incentives for to increase the supply and reduce Mutual lenders +£7.3 bn institutions to lend to small the cost of credit to households and businesses. This will give lenders Banks and other lenders -£9.1 bn companies - the real economy. another year to draw funding from Total -£1.8 bn There are three stages to the the extended scheme and give FLS. The first stage reduces bank greater certainty to longer term funding costs, both directly via funding costs. the FLS and in other (relatively This is however an integral part of the transmission mechanism appear So has the FLS worked? expensive) wholesale and retail the FLS transmission mechanism to be working, but has this fed into The FLS is viewed as having a markets as demand for this funding and an outcome anticipated by additional lending volumes? mixed success. Market rates have fell. Stage two would see these the Bank. Lower savings rates are reduced, yet net lending to the real lower funding costs allowing a response to a fall in demand for More credit? economy by some of the larger lenders to increase the availability retail funding and these lower rates The way the FLS incentivises banks has contracted. On the face of credit by passing the reduced encourage consumers to spend, a bank or building society will of it, it appears that the scheme costs on to borrowers. The FLS increasing economic activity. The depend on an institution’s own has not worked quite as had been is designed so that any additional mutual sector is acutely aware of set of circumstances, such as the hoped. However we do not know net lending allows institutions the challenges faced by savers and strength of their balance sheet and what credit conditions would be to access further cheap funding tries to strike a balance between lending strategy. Some institutions, like if the scheme had not been from the Bank, which in turn providing good value to its members such as mutual lenders, increased introduced in the first place, and encourages further lending. But with savings and remaining their net lending since the scheme there is still time for the full benefits has this mechanism worked, and competitive in the mortgage market. launched (as summarised in the of the scheme to be felt, especially has lending increased to the real Still around one third of best buy table). Overall, however, net lending now the scheme has been extended. economy (stage three) as a result? savings products currently offered by participating institutions had In recent months mortgage lending are from mutuals. reduced by £1.8 billion. Due to the time lag between the activity has also picked up, which drawing of funds from the FLS One very visible effect of the FLS It could be argued that the Bank’s is promising, and whilst some can and mortgage completions it was was its impact on mortgage rates ambitions for the scheme in terms be attributed to other Government difficult to evaluate the effectiveness which began to fall soon after the of higher volumes of lending have schemes such as Help to Buy of the scheme in the first six scheme was announced in June not fully materialised. One reason Equity Loan, it is very likely that months following the launch, but 2012 as the markets began to price for this is that some of the UK’s the FLS has contributed to this now, one year on we should be in a in reductions in longer term debt. largest lenders have been looking growth in lending. stronger position to do so. In June 2012 the average mortgage to deleverage in order to strengthen rate offered across the market was Cheaper credit 4.59 per cent*. This has reduced by Savers have unfortunately emerged For news, quotes and updates from the BSA on the 0.81 basis points to just 3.78 per Funding for Lending Scheme and other Government as casualties of the FLS as average cent at the end of July 2013. initiatives, find and follow us on Twitter @BSABuildingSocs savings rates across the market The first stage (lower funding costs) have decreased. and second stage (cheaper credit) of *Data taken from Moneyfacts

4 demystifying

THE LEVERAGE RATIO - SILVER BULLET OR SNAKE OIL? BY JEREMY PALMER, BSA HEAD OF FINANCIAL POLICY

RECENT DISCOURSE ON BANK REGULATION HAS FINGERED THE LEVERAGE RATIO AS A UNIVERSAL REMEDY FOR THE DRAWBACKS IN RISK-WEIGHTING MODELS, THE GAMING POTENTIAL AND OTHER IMPERFECTIONS IN THE LATEST BASEL CAPITAL ADEQUACY FRAMEWORK. ITS ADVOCATES ENDOW IT WITH ALMOST MAGICAL ATTRIBUTES, BUT ITS CRITICS REGARD IT AS AN OVER-HYPED AND PRIMITIVE TOOL. WHO IS RIGHT?

What is the leverage ratio? law reduces risk by making societies stick to Even where this limit does not drive firms away The leverage ratio is a simple, ancient a low risk asset class with which they are very from originating low-risk mortgages, it strongly measure of capital adequacy: capital divided experienced.) discourages holding them on balance sheet. BSA members have traditionally operated by total assets, expressed as a percentage. The impact of leverage limits on (Or you can express it the other way round a prudent ‘originate to hold’ model, but a as a multiple - a leverage ratio of three per building societies high simple leverage ratio limit subverts this cent corresponds to a multiple of about 33 The BSA has done some initial estimates of approach, by pushing firms to hold the higher times.) ‘Leverage’ itself is a US term - the the impact of leverage limits on UK building risk/higher return lending and to securitise British equivalent is ‘gearing’, describing the societies based on actual figures for end-2012. the low risk lending. As a result their retained enhancement of return a business owner To move from a three per cent to a four per portfolios will be substantially riskier than the expects by using not only his own capital, but cent limit, without raising new capital, building overall profile of loan origination. The BSA does also borrowed money, to finance the business. societies collectively would have to shrink their not see how this can be sensible or desirable. Since banking involves mobilising deposits mortgage books by a quarter, by over £55 and using them to provide loans, intrinsic billion. An alternative way to look at the impact of moving from a three per cent to a four per leverage is bound to be high. The question “TO MOVE FROM A THREE PER is: how high is enough? And how would this cent limit is that the extra capital needed to measure affect BSA members? maintain the current balance sheet amounts to CENT TO A FOUR PER CENT approximately seven years’ retained profit at LIMIT, WITHOUT RAISING NEW The BSA’s view current levels. CAPITAL, BUILDING SOCIETIES The BSA recognises that model defects, Our concerns over a high single leverage limit COLLECTIVELY WOULD HAVE gaming and other shortcomings may cause extend beyond these aggregate impacts. TO SHRINK THEIR MORTGAGE problems in other parts of the financial forest. Operating as the effective capital constraint, BOOKS BY A QUARTER, BY So we support a moderate leverage constraint it creates immediate incentives for firms to OVER £55 BILLION.” as a back stop, but not as the primary driver of move towards higher risk assets. The single capital adequacy. The difficulty arises if a high limit punishes the prudent bank that holds single leverage limit is applied to very diverse high levels of high quality (but low return) liquid business models, especially those specialising assets such as sovereign debt or central bank Is there a better way? in low risk asset classes, such as residential reserves, and the prudent building society that The BSA thinks so - and our views are in fact mortgages. (All building societies must concentrates on safe, low-risk but low-return fully in line with the latest European legislative concentrate on mortgage lending - by law, at mortgage lending. It rewards the imprudent text. Thanks in particular to members of the least 75 per cent of their loan book must be firm that runs its liquidity down to the bare European Parliament, this gives a strong steer fully secured residential mortgages - and this minimum, holds riskier liquid assets and towards leverage ratio limits differentiated by focuses its mortgage lending on higher risk business model. MEPs put forward a three-tier areas - very high, perhaps > 100 per cent loan approach (low-risk business models to have a to value; marginal or stretched borrowers; and limit of 1.5 per cent; average-risk three per cent; commercial real estate. high-risk five per cent) which we think would make a good starting point. We look forward to working with the various European authorities to refine this into a sensible back-stop as originally intended.

5 policy special

PARLIAMENTARY PERSPECTIVES ON MUTUALITY Growing and maintaining diversity in financial services was a commitment made by the Coalition Government in 2010. Three years on, Society Matters asks for the views of a Conservative MP and a Labour Peer, to hear what is going well and what more they believe can be done.

BY ROBERT BUCKLAND, CONSERVATIVE MP FOR SOUTH SWINDON

As Member of Parliament for South Swindon, their good service and high quality products, “I STRONGLY BELIEVE THAT I am lucky to represent a significant number everyone is also responsible for the organisation’s IN THIS ERA OF TIGHT CREDIT of businesses and am particularly proud that good health. This focus on the long-term has AND EXPENSIVE MORTGAGES, Swindon plays host to the headquarters of been shown in recent years to have its benefits. MUTUALS IN THE FINANCIAL Nationwide, the world’s largest building society. The Government recognises this and I am SECTOR OFFER A DIFFERENT Not only is Nationwide a major local employer, WAY OF DOING BUSINESS but it also represents a continuing tradition pleased that they have indicated their support for the sector. Having a diverse financial sector THAT MOST PEOPLE FIND of mutuality that has been such an important ATTRACTIVE.” part of life in Britain. I believe that mutuals, is essential to provide customer choice and to building societies and credit unions have a vital provide competition to the banking sector. role to play in our financial services, providing Building societies are the main mutually-owned good customer service, accessibility and low-cost institutions in the financial sector and the credit for all parts of our society. Far too often, Government is therefore consulting on how best the media make lazy assumptions about the to provide the conditions for their success, whilst financial services sector beginning and ending preserving their unique status as mutuals. The with the City of London, forgetting the role Government’s intention is for building societies to be delivered more efficiently, better products that towns like Swindon and institutions like to have the opportunity to fairly compete with need to be offered, economies of scale need to be Nationwide have to play. the banking sector, whilst preserving their distinct low-risk approach. achieved and the membership base needs to be broadened. The mutual sector also has a role to play in expanding its services across the country, and I strongly believe that in this era of tight credit “FAR TOO OFTEN, THE MEDIA especially to those who struggle financially. and expensive mortgages, mutuals in the MAKE LAZY ASSUMPTIONS Credit unions provide credit at highly financial sector offer a different way of doing ABOUT THE FINANCIAL competitive rates and promote thrift amongst business that most people find attractive: SERVICES SECTOR their members; this is very welcome in tackling businesses operated in the interests of their BEGINNING AND ENDING financial inequality. I am delighted to be a owners, not their shareholders; businesses that WITH THE CITY OF LONDON.” member of the Steam Ahead Credit Union in keep branches open across the country, rather my own constituency. than merely online; businesses that care about their customers as individuals, not numbers. However, credit unions currently serve only The Government should continue to support around one million customers in the UK and the sector in whatever way it can: legislatively, Mutuals have a long and notable history; for the Government want this figure to double by financially and organisationally. The sector itself instance, Nationwide first appeared as the 2019. We are legislating so that more people can should have the confidence to become a true Southern Co-operative Permanent Building have access to affordable, short term credit and competitor for the banking sector. Mutuality has Society in 1884. The concept of mutuality is providing £38 million through the Department a proud heritage but it is also an ‘old dog’ that often associated with the Left, but the truth is of Work and Pension’s Credit Union Expansion can learn new tricks. Long may it prosper! that their core values of trust, mutual benefit Project. However, this is all dependent on the and ownership are as inherently Conservative as mutual sector rising to the challenge. There is an they come. The customers of a mutual are also awful lot that is good about the sector but there Visit www.robertbuckland.co.uk its owners; their self-interest is also the interest for further information about must be an ambition within the sector itself to Robert Buckland of the customer. Just as everyone benefits from truly challenge the banking sector. Services need

6 policy special

PARLIAMENTARY PERSPECTIVES ON MUTUALITY

BY LORD KENNEDY OF SOUTHWARK, LABOUR PEER

Building societies are respected financial mutual spread too thinly to make a significant impact. I Along with this approach also goes the wish to institutions in the UK financial landscape. believe much more could be achieved if focused improve the services and offers that are made to They are renowned as safe and strong, owned decisions were taken. members. Keeping up with and making full use by their members, and committed to delivering of innovations as they develop should, therefore, a range of financial products with good rates for I would like to see all or as many as possible, of also be part of the building societies’ forward borrowers and savers alike. our building societies collectively decide they planning work. were going to focus their support for a fixed They are totally focused on delivering value period of time on helping the credit union for their customers. This makes them unique movement. Like building societies, credit institutions and sets them apart from the banks unions are financial mutuals. They are not in that also have to work towards delivering competition with building societies. They are “I WOULD LIKE TO SEE ALL dividends for their shareholders. In recent years small organisations who encourage saving and OR AS MANY AS POSSIBLE, the financial services sector has seen turbulent deliver small loans to their members. Credit OF OUR BUILDING SOCIETIES times but the presence of the building societies unions have similar values and principles to COLLECTIVELY DECIDE THEY in the sector has been a solid and reliable force. building societies and they would benefit from WERE GOING TO FOCUS THEIR the expertise and professionalism of the building SUPPORT FOR A FIXED PERIOD societies sector. OF TIME ON HELPING THE CREDIT UNION MOVEMENT.” “WHEN LOOKING HOW TO I would like to see building societies make a FURTHER SUPPORT THEIR commitment to partner with a local credit MEMBERS AND THE WIDER union. This partnership could take many forms. COMMUNITY, I BELIEVE BUILDING For example, I particularly favour the idea of Government has an important role to play. SOCIETIES SHOULD CAPITALISE seconding a member of staff from a building They should always work to protect the ON THEIR REPUTATION FOR society to work at the credit union of a fixed unique mutual nature of building societies RELIABILITY, FOR KNOWING period of time, six months to a year, to review and recognise the positive role they play in the ONES COMMUNITY AND FOR the processes, or develop specific agreed wider financial services sector. Having proper THEIR UNDERSTANDING OF THE projects, both aimed at increasing and dialogue is vital and Government should always MUTUAL SECTOR.” improving organisational financial expertise. be open to listen to the concerns and ideas Building societies could also sponsor presented to them from this sector. No one advertising for a local credit union, or wants to see legislation enacted for no good When looking how to further support their support other local projects beneficial to reason, but through the process of dialogue if it members and the wider community, I believe members and the wider community. demonstrated, as challenges develop, legislation building societies should capitalise on their is needed to protect or support the actions reputation for reliability, for knowing one’s Moving forward as institutions, building of building societies in their mission to serve community and for their understanding of societies should continue to do what they have their members then I hope very much the the mutual sector. Many organisations and always done - keeping their members at the Government of the day will take the necessary companies have policies on corporate social forefront of the decisions they take; providing action required. responsibility and some have charitable arms good products, good prices and resisting to deliver support for the community. This the temptation to rush into something that For more information about is exactly what building societies do. If I have can cause problems later. This approach has served the members of building societies well Lord Kennedy, follow him on one criticism of what is often done, it would Twitter @LordRoyKennedy be that their support for the community is and should remain at the top of their agenda.

7 policy special

PARLIAMENTARY PERSPECTIVES ON MUTUALITY

RESPONSE FROM DAVID CUTTER, BSA CHAIRMAN

It is great to see support for the sector from both The encouraging performance shown by the sides of the political divide. It is heartening to sector in recent times has shown how the hear from politicians that building societies have building society movement can grow its market a vital role to play in our financial sector. This share at the expense of its banking competitors, is because they provide customer choice and DID YOU KNOW...? provide good service and products to an ever competition for the banks, and benefit from 41 FIRMS HAVE SIGNED UP increasing number of customers, and be a force longer term decision making. TO THE GOVERNMENT’S for good for generations to come. FUNDING FOR LENDING Being owned by its customers is a building SCHEME - 27 OF THESE ARE society’s greatest strength, giving it focus and MEMBERS OF THE BSA. purpose. But it is also creates challenges as, by definition, there is no recourse to shareholders at times of financial stress. Hence the business To remain safe and solid institutions, whilst approach of building societies tends to be providing good customer outcomes, it is DID YOU KNOW...? more risk averse, delivering financial safety and important that effective regulation exists. CUSTOMERS ARE MORE solidity. From that position of financial strength But this must be proportionate and not SATISFIED IF THEY SAVE WITH OR BORROW FROM they have a good platform from which they can suffocate smaller firms. Government attention A MUTUAL.* truly focus on the needs of their members, both is naturally focussed on the restoration of present and future. the nationalised banks currently under its ownership, and on market intervention to stimulate economic growth, such as DID YOU KNOW...? via Help to Buy and Quantitative Easing. MUTUALS HAVE BEEN HELPING But any solutions should not favour the LOTS OF PEOPLE GET ON largest players at the expense of the smaller THE PROPERTY LADDER FOR ones; there already exists an unlevel playing THE FIRST TIME. LENDING TO NEW BUYERS ACCOUNTED FOR field when competing against nationalised David Cutter is also Group Chief ALMOST A THIRD OF ALL LENDING players and their strong covenant. A sense of Executive of Skipton Building proportionality must prevail. Society. To find out more about BY THE SECTOR IN THE FIRST David and the Society itself, visit HALF OF THE YEAR. www.skipton.co.uk. If you are a member of the press and want to get in touch with The Skipton, follow their media account The Government has indicated its support for on Twitter @skiptonBS_press the sector and is consulting on how best to DID YOU KNOW...? provide the conditions for success. It is vital that the Coalition Agreement, which committed to 30 MILLION CUSTOMERS UK WIDE ARE MEMBERS bringing forward detailed proposals (to foster OF A BUILDING SOCIETY diversity, promote mutuals, and to create a more OR MUTUAL LENDER AND competitive banking industry), is not merely DEPOSIT TAKER. rhetoric.

*Independent research commissioned by the BSA revealed that mutuals scored better than banks across 11 customer services measures. These include aspects such as trust, openness and honesty and complaint handling

8 overview

DEMONSTRATING THE MUTUAL ADVANTAGE BY MARTIN SHAW, CHIEF EXECUTIVE OF THE ASSOCIATION OF FINANCIAL MUTUALS

THE BENEFITS AND STRENGTHS OF MUTUALITY HAVE BEEN DISCUSSED IN DEPTH BY THE GOVERNMENT, THE MEDIA RESPONSE FROM AND MEMBERS OF THE PUBLIC. CHAMPIONING THE MUTUAL MESSAGE FROM AN INSURANCE AND FRIENDLY SOCIETY POINT DAVID CUTTER, OF VIEW IS THE ASSOCIATION OF FINANCIAL MUTUALS, WHO BSA CHAIRMAN ELABORATE ON THE HIGHS AND LOWS OF THE LAST FEW YEARS.

The Association of Financial Mutuals (AFM) (an indicator of capital strength), are mutual. Wharf, the Bank, and parts of what used to be was created in 2010 and is in many respects So a recent initiative to create new legislation Fleet Street of the value of diversity in financial the sister organisation of the BSA. We serve for redeemable shares for mutuals is, for AFM services and the contribution of mutuals to those other aspects of the mutual economy members, a potential means of supporting new sustainable and competitive marketplaces. with a long and proud heritage, mutual insurers longer-term strategic opportunities and not In Brussels, the European Commission is and friendly societies. Between them, our 53 driven by short-term solvency worries. progressing work towards a European Mutuals members manage the savings, protection and Statute, which would be designed to help healthcare needs of 20 million people, and have A lot of the work of AFM focuses on remove barriers to the success of the sector, to total funds under management of £100 billion. demonstrating the ‘mutual advantage’, facilitate greater collaboration between mutuals compiling evidence of where mutuals offer and to make cross-border expansion easier. The nature of their ownership and the a better deal. Thankfully that evidence is consequently lower prices, higher returns or abundant: over the last 12 months we have I don’t just include politicians, regulators and better service that typically result, make mutuals researched customer and staff attitudes to journalists as stakeholders here: last year we accessible and attractive to consumers. And mutuals, investigated trust, measured investment launched an innovative new website for the today, we see people increasingly attracted to performance, analysed claims and evaluated the members of mutuals, (www.ownedbyyou.org), the mutual model: since the beginning of the drag on performance of shareholder dividends. which explains the benefits of mutuality and the financial crisis, members of AFM have seen their In every case we have found a measurable and rights of members, as owners of their mutual. income increase by 50 per cent, at a time when significant advantage to mutuals. the rest of the insurance sector has at best stalled. Whilst there are plenty of grounds for Taking messages about the mutual advantage optimism, the economic headwinds, for small We learned a lot more during the financial crisis to a wide range of stakeholders is key to our organisations in particular are increasingly harsh. about the resilience of mutual insurers, none of work. It has been extremely encouraging to see Consolidation has long been a factor in our them failed, and indeed today eight of the top a broader acceptance in Westminster, Canary sector, and new regulatory initiatives, such as ten UK insurers, measured on free asset ratio Solvency II or the Retail Distribution Review, are providing real strategic challenge and are increasing costs. Meanwhile some traditional product lines such as with profits are for some drying up, and many of those that helped to make the Child Trust Fund a success, have seen a sharp reversal in income in the last two years.

Many of our members focus on a very narrow range of products, so increasing market opportunities takes some innovative thinking. It is very encouraging to see some AFM and BSA members beginning to work together to explore how collaboration can generate valuable new streams of income. I would expect to see more of this in the future, and it can only be good for the mutual sector.

To find out more about the Association of Financial Mutuals, visit their website at www.financialmutuals.org

9 community

PROTECTING VULNERABLE ADULTS BY GILLIAN BAKER, SENIOR CUSTOMER SERVICES MANAGER, CUMBERLAND BUILDING SOCIETY

THE ISSUE AROUND VULNERABLE CONSUMERS HAS MOVED UP THE POLITICAL AGENDA, WITH DAVID CAMERON LAUNCHING THE PRIME MINISTER’S DEMENTIA CHALLENGE TWO YEARS AGO. THE BSA - IN PARTNERSHIP WITH AGE UK AND THE ALZHEIMER’S SOCIETY - HAS BEEN WORKING WITH ITS MEMBERS IN THIS AREA, INCLUDING CUMBERLAND BUILDING SOCIETY, WHO TELL US ABOUT THE PRACTICAL STEPS THEY TAKE TO ENSURE THE NEEDS OF ALL CONSUMERS ARE MET.

There are many types of vulnerable adults Action we took fell into a number of risk of breaching the Data Protection Act, in and many actions that can be taken to categories including: terms of the immediacy of action and the fact protect them. How does the Cumberland • Staff training including awareness of what that the police and Social Services work so deal with this sensitive issue? to look for closely together, the local police is our most We first looked at the problems we were • Procedures for reporting internally appropriate point of contact. experiencing and established that the main • Procedures for reporting externally issue was friends, relatives and carers of What sort of problems have you experienced? elderly customers attempting to withdraw What practical steps did you take with money from customer’s accounts without their each area of action? Clearly these are very sensitive matters where agreement or the customers understanding as family members are concerned. We must We used case studies obtained from a to what was taking place. There are relatively ensure that we have sufficient information to number of sources and converted these small numbers involved but, unquestioningly be as certain as we can that the behaviour and into training material for staff to help them we believed action should be taken. actions being taken are suspicious. However, identify transactions and behaviour where a when we are confident our suspicions are vulnerable adult could be at risk. The material valid, we will report on our suspicions. The was provided in small workshops for relevant account holder may not wish action to business areas in the Society. be taken perhaps as a result of emotional Internal reporting was an adaptation of the pressure being applied by the person existing anti-money laundering suspicious attempting to access the money. However, activity reporting currently in place - no need we are very much protected in our action by to reinvent the wheel! the police who, based on the information we provide to them, make the decision whether External reporting is to SOCA (Serious or not there is sufficient grounds to report to Organised Crime Agency) using the code other interested third parties. Therefore the specifically for this purpose and where decision to take action is down to the police appropriate, we also report directly to the not ourselves. local police. What do you intend to do next? How did you arrive at the most appropriate way to make external We have now had a very small number of reports and which other agencies did cases that have been reported and considered you meet with? by the police and these act as real live case studies for refresher staff training, which we We met with the local police, Age UK, Citizens are currently undertaking. We are looking to Advice Bureau and Social Services and publicise the action we take in conjunction established the most effective way for us to with other third parties and we hope this work in partnership. It was agreed that the would act as a deterrent to those individuals main contact would be with the local police who may seek to take advantage of who would, where appropriate, work with vulnerable adults. other agencies. We continue to report cases to SOCA where we have suspicions.

How do you deal with the Data Protection Act risk? For more information, contact The Data Protection Act does not prevent Gillian directly on: 01228 403288 or us from reporting matters to the police and email [email protected] SOCA where we have reasonable suspicion Visit www.cumberland.co.uk for more that a crime may be being committed. Whilst information about the Cumberland the Mental Capacity Act does allow us to Building Society report cases to Social Services without a

10 interview

SELF BUILD MORTGAGES

ANNA-MARIE DESOUZA, (LEFT) EDITOR stage payment product, where self builders can OF BUILD IT MAGAZINE SPEAKS TO draw down the funds in advance of each stage. SELF BUILD FINANCE SPECIALIST It eases cash flow, reduces deposit amounts RACHEL PYNE FROM BUILDSTORE TO required and makes builds a bit quicker. From our point of view, lenders who were, pre crunch, UNCOVER THE DETAILS OF THE SELF doing the Accelerator have stayed with it as they BUILD MORTGAGE INDUSTRY. see the benefits of it.

What are the benefits of working There are approximately 10-12,000 self builds How has the self build mortgage with BuildStore to the lender? in the UK each year - which means this route market changed or grown There are a few things we do that will protect of construction is a major player in delivering recently? the lender. We look at risk mitigation and much needed new homes to the market. Lending policies over the last few years have provide lenders with a mortgage indemnity changed with regards to a whole host of guarantee and provide Build Out insurance. Self building refers to houses that have been products, not just self build mortgages. In This means that if they do have to possess a built bespoke by the owner and this can mean 2008 - 2010 a lot of lenders came out of a lot of partially built property there is a mechanism in anything from building by hand to employing different markets, but things are changing and place to either help them to re-coup their loss a specialist firm to do the heavy lifting. It is we are currently talking to lenders who want to or will enable them to finish the property where a way of getting a much better quality home re-join the self build sector - and also a number they can sell it, which should mitigate any loss for less money than buying an equivalent of brand new players. as the typical end loan to value of a self build is new developer-built house. It can often offer around 60 per cent. BuildStore do over 1,200 significant savings as you are taking away a big What is a typical self build self build mortgages a year and we get over chunk of the profit margin that would normally mortgage? 1,000 enquires a month. The demand is there, go to the house builder. Self build mortgages are based on a stage so we need to increase the number of lenders It’s a great means to creating new properties payment system. So, lenders will allow you to who offer self build products - this can be done that are much needed in modern Britain, but draw down money at different stages of a build by working with lenders and their valuers on the in order for this to happen finance needs to be so you can make payments to tradespeople and self build industry, particularly with regards to more easily accessible. for materials etc. Typically stage payments are modern methods of construction, as much as made in arrears of the building stages but we possible. work with some lenders to enable them to offer the Accelerator mortgage. This is an advance Is lending on a self build project high risk? Our arrears stats for self builds are less than 0.5 per cent, which is pretty low. Of that 0.5 per cent, 64 per cent of defaults are on completed properties. In terms of repossessions, these tend to be due to an unexpected life event not a self build event, which you would get with any type of lending.

To find out more about BuildStore, visit www.buildstore.co.uk For more information on Build It Magazine, visit www.self-Build.co.uk The Build It awards 2013 are open for entries. Do you offer the best self build mortgage product? Why not enter, visit www.builditawards.co.uk

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MUTUALS: MOVING THE MARKET

MUTUALS HAVE BEEN PROVIDING MORTGAGES IN THEIR LOCAL COMMUNITIES FOR WELL OVER A CENTURY, SO IT HAS COME AS LITTLE SURPRISE THAT THE SECTOR HAS RECEIVED SO MUCH ATTENTION WHEN IT COMES TO GETTING THE HOUSING MARKET MOVING. STRONG LENDING FIGURES AND WIDESPREAD INVOLVEMENT IN GOVERNMENT SCHEMES SUCH AS FUNDING FOR LENDING PUTS MUTUALS IN A STRONG POSITION TO HELP BORROWERS, BUT HOW EXACTLY ARE THEY DOING IT?

James Bawa Peter Myers CEO Teachers Building Society CEO Beverley Building Society Graeme Yorston CEO Principality Building Society “We have a long history of supporting home “To support those trying to purchase their buying initiatives at Teachers and we continue first home, the Beverley has reduced its 90 per “This year we have made loans available up to to support the new build equity loan scheme, cent LTV mortgage rate by 1.26 per cent to 95 per cent Loan to Value and we were the first now known as Help to Buy, plus our standard 3.49 per cent variable. The move is designed lender in Wales to sign up to the MI Business residential mortgages go up to 95 per cent loan to support the housing market and encourage Solutions Mortgage Indemnity Guarantee to value. We are also participating in younger membership at the Society. Since the scheme, to provide a guarantee to applicants the Funding for Lending Scheme and are introduction of the new initiative, completions who wish to purchase a new build property with on track to increase our lending by 20 per cent from first-time buyers have increased by low deposits. As a result of our efforts we have year on year.” 600 per cent as monthly repayments have been able to support more than 800 first-time become more manageable.” buyers onto the property market.”

John Hall CEO Kevin Wilson Gary Brebner CEO Leek United Building Society “Many second-steppers are being held-back CEO Loughborough Building Society from moving up the mortgage ladder due to “Leek United Building Society forged a difficulties raising a sufficiently large deposit. “We have found that the high level of service pioneering partnership with Staffordshire Our ‘Next Step’ mortgage not only reduces we provide at The Loughborough is invaluable Moorlands District Council, in conjunction this to just five per cent, but it also offers a to first time buyers. These are purchasers who with Sector Treasury Services, in May 2012 to variable rate with no early redemption charges. often need that extra help to think through help first-time buyers, within the local area. This product should help unblock the log- the obligations they are committing to before The ‘Local Authority Mortgage Scheme’ helps jam building in the market and enable more buying their first home. Since October 2010 we first-time buyers by providing mortgages up to a people to make their next move ahead of the have had a market leading 90 per cent product maximum of 95 per cent LTV.” Government scheme next year.” and added a 95 per cent product in 2013 for those purchasing within our heartland.”

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Mark Thompson CEO Scottish Building Society

“At the Scottish Building Society we believe in David Dodd assisting borrowers with higher loan to value Mark Bogard CEO Darlington Building Society CEO National Counties Building Society mortgages, whatever their stage in life, by taking their individual circumstances into account – “Darlington Building Society was determined “National Counties helps people have the home regardless of whether they might be first time to play its part in 2013 to get the local housing they want - be they young or old - as long as buyers, or second-steppers.” market moving again and was particularly keen they can sensibly afford it. Our growing team to pull out all the stops to help first time buyers of underwriters mean that we can be sensible take that first step onto the property ladder. The yet flexible with our credit assessment and Society is on track to double its gross lending help those who may well be rejected by the big compared to 2012 and, in addition, exclusive lenders’ computers. Our Family First Guarantor mortgage products have been developed with Mortgage has been designed to allow families local builders and housing associations to help younger borrowers realise their ambitions provide 95 per cent LTV products to home for home ownership.” movers and first time buyers.”

Jeremy Wood CEO

“The Funding for Lending Scheme has had a real and positive impact, with tangible consequences for borrowers. In Dudley Building Society’s West Midlands heartland, the benefits are even more pronounced. Having provided access to cheap funding, and having seen how the consumer has ultimately benefited, is it not reasonable to extend the scheme indefinitely?” Paul Winter Paul Ellis CEO CEO “The ethos of working together for the good “At Ecology we’ve always had a strong focus on of the community remains strong at Ipswich stimulating the market for sustainable properties Building Society and has seen us working with - and our innovative lending for self-build local authorities and housing associations to played a critical role in the development of the reach into our communities and help make self-build mortgage market. In March 2013 home ownership a reality for more people. This we increased our maximum loan-to-value on includes schemes such as HOLD enabling those residential and shared ownership properties with life long disabilities to secure a home of to 90 per cent, to enable us to support more Dick Jenkins CEO Bath Building Society their own and our ‘Sweat Equity’ mortgage; a people to build, buy or renovate sustainably. self build, shared ownership mortgage.” We’re also working to make the housing market “Right now mortgages are more affordable that open to more people by supporting mutual they have been for well over a decade. But that’s home ownership models, such as cohousing and no comfort if as a first time buyer you need a housing co-operatives.” huge deposit to get an attractive rate. Our 95 per cent and 100 per cent parent assisted mortgages give first time buyers the opportunity to get onto the property ladder by using the equity in their parents’ property in place of the deposit.”

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THE IPSWICH & ME

WHAT DO YOU LOOK FOR IN A JOB? A CHALLENGE? A CHANGE? OR SOMETHING ELSE? MUTUAL ORGANISATIONS HAVE LONG BEEN PRAISED FOR THE WAY THEY TREAT THEIR CUSTOMERS, BUT WHAT ABOUT THE STAFF? SOCIETY MATTERS TALKS TO JOANNE PALFREY, MARKETING AND CSR OFFICER AT THE IPSWICH BUILDING SOCIETY TO FIND OUT MORE.

Ensuring that staff are happy, healthy and motivated is a major focus for the Ipswich and Paul Winter, our Chief Executive, really believes that employees are the best asset an organisation can have. So much so that the Ipswich now allocates budget and resource to a bespoke health and wellbeing programme. This is part of my job that I really enjoy, and it is rewarding to see the hard work and focus pay off in our absence and turnover figures. Our monthly initiatives have a range of topics, including healthy eating, relaxation and physical activity. They say to practice what you preach, so as part of this programme I have recently taken up running at lunchtimes and completed my first 5k only a few weeks ago.

Staff development is also something that the Never a dull day! Serving healthy snacks with Ipswich CEO, Paul Winter. Society takes seriously. I joined as Marketing Assistant and took advantage of every training I’ve worked for the Ipswich for five years, but respected philosopher Confucius: “chose a and development opportunity that came my here I’m considered quite new - we’ve just said job you love, and you will never have to work way. Being promoted to Marketing & CSR goodbye and ‘happy retirement’ to our longest a day in your life”. Personally I need variety, Officer was a great achievement, and this year I serving employee, Bob, who joined in 1973. and lots of it. My job certainly gives me this have been fortunate to round off an employee Things certainly looked a lot different when opportunity, and from giant papier-mâché pigs development programme with the Market Bob joined - the Ipswich got its first computer, a to pedometers, no two days are ever the same. Harborough Building Society and also attend the landmark occasion, a year later in 1974. BSA Emerging Leaders conference in Harrogate. When I joined the Ipswich in 2008, I Both of these programmes I enjoyed immensely, What makes someone stay with an employer for ashamedly admit that I wasn’t particularly getting the chance to speak with my peers and 40 years? To me, my first priority is being happy aware of the role of a building society learn how other Societies work. My next big - and being valued. To use the much-quoted, or mutual organisation. The company I step is to commence the Chartered Institute of previously worked for was a very commercially Marketing Chartered Postgraduate Diploma. orientated limited company, so it was a change of focus. To experience an organisation And for the future? Who knows what is around working to be a responsible business role the corner but I am certainly a building society model - how refreshing. convert - maybe one day I’ll even be considered one of the ‘old timers’. Of course, corporate social responsibility is a hot topic but for the Ipswich doing the right thing has never gone out of fashion. To find out more about Ipswich Along with that goes the sense of duty and Building Society, visit their website responsibility to members, our staff, local at www.ibs.co.uk or follow them on Twitter @IpswichBuildSoc communities and to the environment.

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Glasgow Credit Union

and work with local charities of the Year), Association of and social enterprises across Scottish Business Women Glasgow to help empower young Awards (Business of the adults, minority groups and the Year) and the Glasgow financially uninformed. Over 90 Business Awards (Glasgow’s local employers offer our services Best Performing Business to their employees via their salary, and Glasgow’s Favourite In terms of the UK financial In recent years we’ve gone from making it as easy as possible Business – the latter being marketplace, Glasgow Credit strength to strength, increasing to build savings and access our the only award of the night to Union is relatively small - but membership by around 10% other services. Our regular road be voted for by the public). we’re making a big impact on percent each year, consistently show style events which promote Glasgow Credit Union is our members and our wider paying a market-beating financial capability within these proud to be associated community. Our growing dividend to reward our savers, workplaces provide the skills and with the Building Societies reputation as the UK’s most and introducing innovative new confidence which help people Association and look forward successful and popular products like our award-winning manage their finances effectively. credit union has allowed us Consolidation Loan which won to building our reputation as to achieve a landmark £115 ‘Best New Product’ in the National 2013 is proving to be a very a trusted financial mutual and million in assets and reach Social Enterprise Awards 2012. successful year for us with award the UK’s leading credit union. over 32,000 members. nominations at the National We like to get involved in our For over 23 years, we have Business Awards (Social Enterprise community and being a local been providing straightforward organisation means we can savings accounts, low be really hands on. We hold cost loans and innovative Visit us online at www.glasgowcu.com financial education workshops in mortgages to the people to find out more primary and secondary schools, of Glasgow.

Introducing Golden Charter

Earlier this year, Golden This mutual structure means We are delighted to be working of independent funeral Charter became the UK’s that all profits generated by the with Hinckley & Rugby, directors throughout the largest funeral plan provider. business are re-invested to provide Monmouthshire and Hanley country, we recognise The principle aim of our our members, local independent Economic building societies to many of the ideals held by business is to secure the long- funeral directors, with market- offer their members our range BSA members and it is term future of independent leading pay outs. of Golden Charter 50+ funeral for this reason that we are funeral directors by increasing plans. We are also in discussion proud to be the only funeral We have now sold more than their market share and offering with several other societies with a planning company which 350,000 funeral plans to people them the resources they need view to agreeing similar initiatives is an Associate Member of throughout the UK who are looking to compete against the large for the benefit of their members. the BSA. for peace of mind and protection conglomerate providers. We As an organisation dedicated against rising funeral costs. Last work on behalf of more than to safeguarding the livelihood year, our plan sales increased 30 2,900 independent funeral per cent from the previous year directors across the country, and as the company continues and this number continues For further information please contact me directly at to expand, we are forging new to grow. Golden Charter: Allan Hughes (Partnerships Manager) partnerships with other like-minded Like a building society, Golden organisations which are choosing email [email protected] Charter is owned by and to offer their customers the benefits Tel 0141 931 6318 operated for the benefit of its of pre-paying for their funeral with Mob 07850 655 419 members: an association of Golden Charter. independent funeral directors.

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BSA EVENTS 2013 EDUCATIONAL, NETWORKING AND KNOWLEDGE SHARING EVENTS FOR MUTUAL LENDERS AND DEPOSIT TAKERS

Audit and accounting update Mortgage Market Review: Arrears and possessions Leicester, 10 October 2013 six months to launch Birmingham, 28 November 2013 In a highly specialist and regulated sector it is London, 24 October 2013 Despite the continuing low interest environment important for societies and auditors to keep up This seminar provides an opportunity to review and stabilising arrears levels, the effect of interest to date with changing regulatory, auditing and your MMR readiness, get tips on the key areas rate rises in the future means that arrears and accounting requirements. of regulatory focus and assess the progress made possessions, and the action taken by lenders, in your organisation. The FCA will feedback will remain in the spotlight. This seminar will This popular annual seminar, organised in on the readiness of the industry, what it sees as help participants plan for the coming year with conjunction with KPMG LLP, provides a the key risks for ‘Go Live’ and what support information on what to expect in 2014, and summary of recent changes and reminders of is available to firms to ensure compliance deliver the tools, techniques and best practice to key requirements and explains the implications and a smooth transition. Other speakers will aid effective arrears management. for building societies and their auditors, with provide detail of addressing the challenges presentations from specialists with extensive in affordability, stress testing, training and Seminar for established directors financial sector and building society experience. competence regimes and more. London, 4 December 2013 BSA Annual lunch sponsored by Our annual seminar for established directors Seminar for new directors delivers a topical update on matters affecting Legal & General London, 19 November 2013 London, 14 November 2013 the sector and features presentations on current This annual seminar provides an introduction policy and regulatory issues, professional Join us at our Annual Lunch to celebrate to the issues faced by directors that are new to development and the challenges directors might the sector’s achievements this year, to discuss the building society sector. We discuss a range expect to face. Structured group discussions matters of interest with industry peers and to of issues such as competitive pressures, the enable participants to exchange views and ideas network with key contacts from government, regulatory and legislative framework, the role of on strategic issues. regulators, industry bodies, the media and other the board, and financial policy issues. Structured organisations that work closely with and support group discussion facilitates an exchange of ideas the mutual sector. Approximately 200 guests are on industry issues. expected to attend and tables of ten are available to host - the package includes drinks on arrival and a three-course lunch served with wines.

For more information and to register, visit WWW.BSA.ORG.UK

Save the date. Our annual conference, exhibition and dinner will take place on 7 & 8 May 2014 in Manchester. Please contact us to discuss opportunities to exhibit or sponsor the event. As part of the conference and its promotional campaign, you place your company’s brand in front of the sector’s leading buyers and decision makers. “The opportunity to meet so many senior building society executives in one venue is unrivalled.” Marketing Manger, Wolters Kluwer - exhibitor 2013

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