The Building Societies (Financial Assistance) Order 2008

EXPLANATORY NOTE

(This note is not part of the Order)

This Order modifies the application of the Building Societies Act 1986 (c. 53) (“the 1986 Act”), in specified circumstances, to facilitate the provision of “relevant financial assistance” by the Bank of England to building societies. “Relevant financial assistance” is any financial assistance provided for the purpose of maintaining the stability of the financial system in the United Kingdom (see sections 11(2) and 15(1) of the Banking (Special Provisions) Act 2008 (c. 2)).

Article 2 defines terms used in the Order and provides that references to the Bank of England include any person acting for or on behalf of the Bank or providing relevant financial assistance to a building society on the basis of relevant financial assistance from the Bank. This could include another institution which provides relevant financial assistance to a building society on the basis of, for example, an indemnity or guarantee from the Bank, provided the conditions in article 2(2)(b) are met.

Article 3 modifies the application of section 5 of the 1986 Act so that no building society shall be regarded, by virtue of any relevant financial assistance it receives from the Bank of England, as failing to comply with the requirement that its purpose or principal purpose is that of making loans which are secured on residential property and funded substantially by its members.

Article 4 disapplies section 6 of the 1986 Act where, as a consequence of any financial assistance received from the Bank of England, a building society has transferred, assigned or otherwise disposed of any of its assets, and the society would otherwise be in breach of the lending limit in section 6.

Article 5 modifies the application of section 7 of the 1986 Act, so that any financial assistance a society receives from the Bank of England is disregarded for the purposes of the funding limit in that section.

Article 6 disapplies section 8(1)(c) of the 1986 Act, so that the restriction in that section on raising funds from a body corporate does not apply in relation to relevant financial assistance from the Bank of England.

Article 7 disapplies section 9B of the 1986 Act, so that a building society may create a floating charge in favour of the Bank of England in connection with relevant financial assistance received from it.

Article 8 makes various modifications to the application of Schedule 2 to the 1986 Act, to remove any restrictions on the receipt of relevant financial assistance arising from the memorandum or rules of a building society.

Articles 9, 10 and 11 make various modifications to the application of section 90A of, and Schedules 15 and 15A to, the 1986 Act. These ensure that the relevant law on administrative receivers applies, with the appropriate modifications, in relation to any administrative receiver appointed by the Bank under the terms of a loan secured by a floating charge. Schedule 15A already provides that references in the applicable insolvency legislation to “company” and “the registrar of companies” have effect as references to “building society” and “the Financial Services Authority” respectively: see paragraph 2(1) of Schedule 15A.

Article 12 makes a consequential modification to the application of regulation 14 of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979). This is necessary as the administration provisions in Part II of the Insolvency Act 1986 (1986 c. 45) and Part III of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), rather than the provisions in Schedule B1 to that Act and to that Order, apply in relation to a building society.

A regulatory impact assessment of the effect that this instrument will have on the costs of business is available from the Banking Reform team at HM Treasury, 1 Horse Guards Road, London SW1A 2HQ, or e-mail [e-mail], and is annexed to the Explanatory Memorandum which is available alongside the instrument on the OPSI website (www.opsi.gov.uk).