The Building Societies Act 1986 (Modification of the Lending Limit and Funding Limit Calculations) Order 2004

Explanatory Note

(This note is not part of the Order)

This Order modifies the application of the Building Societies Act 1986 provisions on the calculation of the lending limit and the funding limit (“the nature limits”) to the assets of subsidiary undertakings. Sections 6 and 7, which set out how the nature limits are to be calculated for a building society, require that the figures to be used for a society’s and its subsidiaries' assets and liabilities are taken from the society’s accounts. Building societies will be able to use International Accounting Standards (“IAS”) to prepare their accounts from 1st January 2005 and those with traded securities will be required to use IAS from that date. This will change the way in which some assets are shown in some societies' accounts. Where a building society prepares its accounts using IAS, certain securitised assets and liabilities in respect of those assets, which previously would only have appeared at net value in their accounts will now appear at gross value. This would have the effect of changing the results of the nature limits calculations for some building societies. This Order therefore provides that securitised assets held by subsidiary undertakings can, where the transaction under which they are securitised meets certain conditions, be included for the calculation of the nature limits at net value regardless of how they appear in the society’s accounts.