The Building Societies (Designation of Qualifying Bodies) (Amendment) (No. 4) Order 1990

Explanatory Note

(This note is not part of the Order)

This Order amends the Building Societies (Designation of Qualifying Bodies) Order 1988, “the 1988 Order”, which designates corporate bodies and types of corporate body as suitable for investment or support by building societies under section 18 of the Building Societies Act 1986, by designating Girobank plc as such a body. In so designating Girobank plc the Order revokes the designation of LondonClear Limited which societies no longer have a need for.

Girobank plc is designated as suitable for investment and support by a building society, or for support in the absence of investment (article 2 and paragraph 1(c) of the Schedule). Investment is defined by section 18 of the Act as acquiring and holding shares in and forming, or taking part in forming, bodies corporate. Support is defined by that section as the provision of loans, grants, guarantees, services or property to bodies corporate.

The designation of Girobank plc is subject to the conditions set out in paragraph 1(e) of the Schedule to the Order.

First the power to invest in or support Girobank plc is available only to a building society which has a qualifying asset holding. A building society has a qualifying asset holding where the aggregate value of its total commercial assets is not less than £100 million (section 118 of the Act).

Secondly, the Order provides that Girobank plc is not suitable for investment or support by a building society if it has a subordinate organisation outside a prescribed range. The prescribed range comprises The Office of the Banking Ombudsman, bodies individually designated in the 1988 Order, and bodies designated by description in that Order which do not have the capacity to have subordinate organisations. A subordinate organisation is one in which a designated body has an interest of at least 5 per cent.

Thirdly, the power for a society to invest in or support Girobank plc is not available if Girobank plc engages in market making or, apart from the exceptions specified in the new paragraph 8 in paragraph 3 of the Schedule to the Order, if its business includes activities which the society itself has no power to undertake because the society has not adopted the necessary adoptable power or because the activities would contravene a restriction on the extent of a power which the society had adopted.

Fourthly, the power for a society to invest in or support Girobank plc is subject to the condition that, Girobank plc must maintain systems similar to those required of building societies for the safe custody of documents and for assessing the adequacy of security. A further condition is that Girobank plc is limited to making loans which the society itself would have had power to make had the borrower been a member of the society, and the mortgages are required, subject to limited exceptions, to be transferable without the consent of the borrower.

For a limited transitional period the exceptions to the restrictions on the activities of Girobank plc include the continuation of overdrafts in excess of £10,000 per individual arranged before the date Girobank plc becomes associated with the society provided there is no increase in the limits allowed on such overdrafts, and of corporate loans (other than secured loans and overdrafts), debts relating to acceptances of bills of exchange and letters of credit, and forward rate agreements arranged before that date.