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Building Societies Act 1986

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U.K.

Building Societies Act 1986

1986 CHAPTER 53

An Act to make fresh provision with respect to building societies and further provision with respect to conveyancing services.

[25th July 1986]

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

Modifications etc. (not altering text)

C1Act modified (temp.) by S.I. 1986/2168, art. 3(1)(2)(a)(b)

C3Act applied (with modifications) and modified by S.I. 1988/1394, arts. 2, 7, Schs. 1, 2

Act applied (N.I.) (1.10.1991) by S.I. 1989/2404, art. 12, Sch. 1 Pt. I para. 6; S.R. 1991/410, art. 1(2)

Act applied (N.I.) (1.10.1991) by S.I. 1990/1504, art. 111; S.R. 1991/438, art. 2(d)

Act applied (with modifications) (1.7.1992) by S.I. 1992/1547, arts. 5, 6, Sch. 2

C4Act: definition applied (N.I.) (1.6.1992) by Northern Ireland (Emergency Provisions) Act 1991 (c. 24, SIF 39:1), ss. 55, 69(1)(2), Sch. 4 para. 7(4); S.I. 1992/1181, art. 2 (which 1991 Act was repealed (25.8.1996) by 1996 c. 22, ss. 59, 62(1), 63(3)(7), Sch. 7 Pt. I)

C6Act: power to amend conferred (9.6.1997) by 1997 c. 32, s. 32(5)(c); S.I. 1997/1427, art. 2(g)

Part IU.K. The Building Societies Commission

1 The Building Societies Commission.U.K.

(1)For the purposes of this Act there shall be established a body of Commissioners to be called the Building Societies Commission (in this Act referred to as “the Commission”).

(2)The Commission shall consist of not less than four and not more than ten members to be appointed by the Treasury and the Treasury shall appoint one member (to be known as the First Commissioner) to be the chairman, and another member to be the deputy chairman, of the Commission.

(3)Any appointment under subsection (2) above may be on either a full-time or a part-time basis.

(4)The general functions of the Commission shall be—

(a)to promote the protection by each building society of the investments of its shareholders and depositors;

(b)to promote the financial stability of building societies generally;

[F1(c)to secure that the principal purpose of building societies remains that of making loans which are secured on residential property and are funded substantially by their members;]

(d)to administer the system of regulation of building societies provided for by or under this Act; and

(e)to advise and make recommendations to the Treasury or other government departments on any matter relating to building societies;

and the Commission shall have the other functions conferred on it by or under the subsequent provisions of this Act.

(5)The Commission shall have power to do anything which is calculated to facilitate the discharge of its functions, or is incidental or conducive to their discharge.

(6)The functions of the Commission, and of its officers and employees, shall be performed on behalf of the Crown.

(7)Schedule 1 to this Act has effect with respect to the Commission.

Textual Amendments

F1S. 1(4)(c) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 1; S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(i)

2 Financial provision for Commission.U.K.

(1)There shall be charged on building societies such a general charge towards the expenses of the Commission and such fees in respect of the exercise of its functions as are authorised under this section.

(2)The Treasury may, by regulations, make provision for—

(a)a general charge to be levied, with respect to each accounting year of the Commission, on every authorised building society to be paid at such rate computed by reference to such criteria, at such time and in such manner as may be prescribed; and

(b)fees of such amounts as may be prescribed to be paid by building societies in respect of the exercise of the Commission’s functions in relation to them.

(3)The provision to be made from time to time under subsection (2) above, by way of the general charge and fees, shall be such as to produce an annual revenue of the Commission sufficient to meet its expenses properly chargeable to revenue account, taking one year with another.

(4)Regulations under subsection (2) above may include—

(a)provision for any fees payable by societies to be reduced or for payment of any fees to be waived by the Commission in circumstances determined by or under the regulations; and

(b)such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient.

(5)The power to make regulations under subsection (2) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(6)The amounts received by the Commission under this section shall be applied as an appropriation in aid of money provided by Parliament for the expenses of the Commission under this Act, and in so far as not so applied, shall be paid into the Consolidated Fund.

(7)In this section—

  • authorised”, in relation to an accounting year of the Commission, means authorised at any time during that year; and

  • prescribed” means prescribed in regulations under subsection (2) above.

Subordinate Legislation Made

P1S.2(2) and S.116(2) power exercised by S.I. 1991/277.

3 Accounts of Commission and audit.U.K.

(1)The Commission shall keep proper accounts and proper accounting records and shall prepare in respect of each accounting year a statement of accounts in such form as the Treasury may direct.

(2)The statement of the accounts required by subsection (1) above may be combined with the statement of the accounts of the Chief Registrar which he is required to prepare as regards his functions.

(3)The Commission shall send to the Treasury and to the Comptroller and Auditor General, before the end of the period of seven months after the end of each accounting year, a copy of the statement of accounts for that year.

(4)The Comptroller and Auditor General shall examine, certify and report on every statement of accounts received by him from the Commission and shall lay a copy of the statement and of his report thereon before each House of Parliament.

(5)In this Part “accounting year”, in relation to the Commission, means the period of twelve months ending with 31st March in any year, except that the Commission’s first accounting year shall end on 31st March 1987.

4 Annual and other reports.U.K.

(1)It shall be the duty of the Commission to lay before the Treasury and before Parliament as soon as possible after the end of each accounting year a report on the discharge of its functions during that year.

F2(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)The Commission may lay before Parliament from time to time such other reports relating to the discharge of its functions, whether in relation to building societies generally or a particular building society, as it thinks fit.

Part IIU.K. Constitution of Building Societies

EstablishmentU.K.

5 Establishment, constitution and powers.U.K.

[F3(1)A society may be established under this Act if (and only if) it complies with the following requirements, namely—

(a)its purpose or principal purpose is that of making loans which are secured on residential property and are funded substantially by its members; and

(b)its principal office is in the United Kingdom.]

(2)A society is established under this Act on compliance by the persons establishing it with the scheduled requirements and is incorporated under this Act as from the date of registration by the central office.

(3)A society incorporated under this Act is referred to in this Act as a “building society".

(4)A society incorporated under the repealed enactments whose principal office, as registered with the central office immediately before the commencement of this section, was in the United Kingdom, shall be deemed to be registered (and accordingly as incorporated) under this Act.

[F4(4A)If, after its establishment, a building society fails to comply with the requirements imposed by subsection (1)(a) or (b) above—

(a)the powers conferred on the Commission by section 36 or 37 shall become exercisable in relation to the society; but

(b)the failure shall not affect the validity of any transaction or other act.]

[F5(5)Subject to the provisions of this Act, a building society shall have the powers conferred on it by its memorandum.]

(8)Schedule 2 to this Act has effect as respects the constitution, powers, and regulation of building societies and in that Schedule—

(a)Part I makes provision with respect to the constitution, memorandum, rules and certain incidents of membership;

[F6(b)Part II makes provision with respect to the capacity of a society and the powers of its directors to bind it; and]

(c)Part III makes provision with respect to meetings, postal ballots and resolutions;

[F7and in this section “scheduled”, with reference to requirements for establishment, means contained in that Schedule]

(9)Any obligation imposed by this Act or the rules of a building society to give or send notices or other documents to members is subject to paragraph 14 of that Schedule.

[F8(10)In this Act “residential property” means land at least 40 per cent of which—

(a)is normally used as, or in connection with, one or more dwellings; or

(b)has been, is being or is to be developed or adapted for such use;

and for the purposes of this subsection, the area of any land which comprises a building or other structure containing two or more storeys shall be taken to be the aggregate of the floor areas of each of those storeys.]

Textual Amendments

F3S. 5(1) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)-(5) of S.I. 1997/2668) by 1997 c. 32, ss. 1(1), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(a)

F4S. 5(4A) inserted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)-(5) of S.I. 1997/2668) by 1997 c. 32, ss. 1(2), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(a)

F5S. 5(5) substituted for s. 5(5)-(7) (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)-(5) of S.I. 1997/2668) by 1997 c. 32, ss. 1(3), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(a)

F6S. 5(8)(b) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 3(1)(a), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(c)

F7Words in s. 5(8) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 3(1)(b), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(c)

F8S. 5(10) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)-(5) of S.I. 1997/2668) by 1997 c. 32, ss. 1(4), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(a)

Modifications etc. (not altering text)

C7S. 5(8)(c) excluded (temp.) by S.I. 1986/2168, art. 3(1)(2)

[F9Making loans]U.K.

Textual Amendments

F9S. 6 and cross-heading substituted for s. 6 (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 4, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(d)

[F106The lending limit.U.K.

(1)A building society shall secure that the difference between—

(a)the value of X on any quarter day; and

(b)the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,

does not exceed 25 per cent of that value of X.

(2)For the purposes of subsection (1) above—

X = the difference between the total assets of the society and any subsidiary undertakings of the society as shown in the society’s accounts and the aggregate of—

(a)the liquid assets of the society and any such undertakings as shown in those accounts in pursuance of regulations under section 73(7);

(b)the fixed assets of the society and any such undertakings as so shown; and

(c)where any such undertakings are insurance companies within the meaning of the M1Insurance Companies Act 1982, such of their assets as shown in those accounts as represent long term insurance funds; and

Y = the principal of, and interest accrued on, loans which are owed to the society or any subsidiary undertaking of the society and are fully secured on residential property;

and for the purposes of this subsection the total assets of a society and any subsidiary undertakings of the society shall be taken to be increased by the amount of any provision made for bad or doubtful debts of the society or any such undertaking.

(3)Any loans owed to the society or any subsidiary undertaking of the society shall be disregarded for the purposes of the definition of “Y” in subsection (2) above to the extent that they are not included in the total assets of the society and any such undertakings as shown in the society’s accounts.

(4)Any reference in subsection (2) or (3) above to anything being shown in a society’s accounts shall be construed—

(a)in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;

(b)in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.

(5)If a building society fails to comply with the requirement imposed by subsection (1) above—

(a)the powers conferred on the Commission by section 36 shall become exercisable in relation to the society; but

(b)the failure shall not affect the validity of any transaction or other act.

(6)The Treasury may by order substitute for the percentage specified in subsection (1) above such greater percentage (not greater than 40 per cent) as appears to them to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Treasury to be necessary or expedient.

(7)The Commission may, with the consent of the Treasury, by order—

(a)modify subsections (2) and (3) above in their application to assets of subsidiary undertakings;

(b)apply those subsections to corresponding assets of associated undertakings; or

(c)modify those subsections in their application to such assets.

(8)An order under subsection (7) above may make—

(a)different provision for different circumstances;

(b)provision for particular assets of undertakings to be disregarded; and

(c)such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(9)The power to make an order under subsection (6) or (7) above is exercisable by statutory instrument.

(10)No order shall be made under subsection (6) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(11)A statutory instrument containing an order under subsection (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(12)In this section “long term insurance funds”, in relation to an insurance company within the meaning of the M2Insurance Companies Act 1982, means funds maintained by it—

(a)under section 28(1)(b) of that Act (assets attributable to long term business); or

(b)where it is incorporated in a country or territory outside the United Kingdom, under the corresponding provisions of the law of that country or territory.

(13)Where a loan is owed to a lending syndicate of which a building society or connected undertaking of a building society is a member, so much of the loan as is referable to the society’s or undertaking’s participation in the syndicate shall be treated for the purposes of this section and sections 6A and 6B as a loan owed to the society or undertaking.

(14)In this section and section 7—

  • accounts”—

    (a)

    in relation to a building society without subsidiary undertakings, means individual accounts under subsection (1) of section 72;

    (b)

    in relation to such a society with such undertakings, means group accounts under subsection (2) of that section;

  • quarter day”, in relation to a building society, means a day on which a financial year of the society ends, or a day which is three months, six months or nine months after such a day;

and references to any value on a quarter day are references to that value at the close of business on that day.

(15)If an agreement between the Commission and a building society so provides, the definition of “quarter day” in subsection (14) above shall have effect in relation to the society as if for any reference to a number of months there were substituted a reference to a number of days specified in the agreement.]

Textual Amendments

F10S. 6 and cross-heading substituted for s. 6 (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 4, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(d)

Marginal Citations

[F116ALoans secured on land.U.K.

(1)For the purposes of this Act a loan is secured on land if it is secured by—

(a)a mortgage of a legal estate in land in England and Wales or Northern Ireland;

(b)a heritable security over land in Scotland; or

(c)a qualifying security over land in an EEA country or territory other than the United Kingdom.

(2)For the purposes of this Act a loan is also secured on land if—

(a)it is secured by a mortgage of an equitable interest in land in England and Wales or Northern Ireland;

(b)the equitable interest is an equitable interest in land of a description, and is created in circumstances, prescribed in an order made by the Commission with the consent of the Treasury; and

(c)any conditions prescribed in the order are complied with;

and an order under this subsection may apply in relation to securities held by or on behalf of building societies or connected undertakings of a description specified in the order, or securities held by or on behalf of all such societies or undertakings other than those of a description so specified.

(3)For the purposes of this Act—

(a)a loan shall be treated as secured by a mortgage of a legal estate in registered land in England and Wales or Northern Ireland notwithstanding that the loan is made before the mortgagor is registered as proprietor of the estate; and

(b)a loan shall be treated as secured by a heritable security over land in Scotland notwithstanding that the loan is made before title to that land has been transferred to the debtor in the heritable security.

(4)The Commission may, with the consent of the Treasury, by order provide for any provisions of this Act to have effect in relation to loans secured on land outside the European Economic Area with such modifications as appear to the Commission to be appropriate.

(5)An order under subsection (2) or (4) above may make such incidental, supplementary and transitional provision as appears to the Commission to be necessary or expedient.

(6)The power to make an order under subsection (2) or (4) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(7)In this section and section 6B—

  • EEA country or territory” means a country or territory in the European Economic Area;

  • qualifying security”, in relation to land in an EEA country or territory other than the United Kingdom and a loan, means a security over the land which—

    (a)

    acknowledges, and requires repayment of, the loan; and

    (b)

    secures repayment of the loan on the land;

    and for the purposes of this section and that section, the Channel Islands, the Isle of Man and Gibraltar shall be treated as included in the European Economic Area.

(8)In this Act “land”, in the expression “loan secured on land”, means—

(a)land in an EEA country or territory; and

(b)in so far as land in any other country or territory is, under any provision of this Act, land on which loans may be secured, land in that other country or territory.]

Textual Amendments

F11S. 6A inserted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 5, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(e)

[F126B Loans fully secured on land.U.K.

(1)For the purposes of this Act a loan which is owed to a building society or a subsidiary undertaking of a building society and is secured on residential property or other land is fully secured on the land if—

(a)the principal of, and interest accrued on, the loan does not exceed the value of the requisite security; and

(b)no, or no more than one, mortgage of the land which has priority over the society’s or undertaking’s mortgage is outstanding in favour of an outside person.

(2)Where a mortgage of the residential property or other land which has priority over the society’s or undertaking’s mortgage is outstanding, the principal of the loan secured or, in the case of a loan by instalments, intended to be secured by that mortgage shall be deducted from the value of the requisite security for the purposes of subsection (1)(a) above.

(3)Where the loan is secured on residential property or other land in the United Kingdom, any outstanding charge over the land which—

(a)in the case of land in England and Wales, is registered in the appropriate local land charges register;

(b)in the case of land in Scotland, is recorded in the Register of Sasines, or registered in the Land Register, under section 108 of the M3Civic Government (Scotland) Act 1982 or Schedule 9 to the M4Housing (Scotland) Act 1987;

(c)in the case of land in Northern Ireland, is registered in the statutory charges register under section 87 of, and Schedule 11 to, the M5Land Registration Act (Northern Ireland) 1970,

shall be disregarded for the purposes of subsections (1)(b) and (2) above.

(4)Where, on the occasion on which a building society or a subsidiary undertaking of a building society makes or acquires a loan which is secured on land, the society or undertaking is satisfied that the loan is—

(a)a loan which is fully secured on residential property;

(b)a loan which is not so secured but is fully secured on land; or

(c)a loan which is not fully secured on land,

the loan shall be treated as such a loan for the purposes of this Act until such time (if any) as subsection (7) below applies.

(5)Subsection (4) above shall have effect in relation to a loan which the society or undertaking makes by two or more payments on different dates as if—

(a)the reference to the occasion on which the society or undertaking makes the loan were a reference to the occasion on which it makes the first of the payments;

(b)other references to the loan were references to it in its intended maximum amount; and

(c)the value of any security for the loan were its expected maximum value.

(6)Where a building society or a subsidiary undertaking of a building society makes or acquires a loan which is secured on land, the society or undertaking shall be deemed to be satisfied as mentioned in paragraph (c) of subsection (4) above until such time (if any) as it is satisfied as mentioned in paragraph (a) or (b) of that subsection.

(7)Where at any time, in the case of a loan treated as falling within paragraph (a), (b) or (c) of subsection (4) above, the society or undertaking—

(a)is satisfied—

(i)on a revaluation that the value of the requisite security has changed;

(ii)on notice given to it by the borrower that there has been a change in the use of the land;

(iii)that so much of the mortgage debt as represents the principal of the loan has changed;

(iv)that the principal of the loan secured by a prior mortgage has changed or has been repaid; or

(v)that the relative priority of the mortgage of the land on which the loan is secured has changed;

(b)is also satisfied that the change or repayment is such that, if it were to make a loan equal to the mortgage debt at that time, the loan would instead be a loan falling within another of those paragraphs; and

(c)in a case falling within paragraph (a)(i) above, elects that this subsection shall apply,

the loan shall be treated as such a loan for the purposes of this Act until such time (if any) as this subsection again applies.

(8)In this section—

  • outside person”, in relation to a building society or a subsidiary undertaking of a building society, means any person other than the following, namely—

    (a)

    the society;

    (b)

    a subsidiary undertaking of the society;

    (c)

    a lending syndicate of which the society or such an undertaking is a member; and

    (d)

    trustees of a trust under which the society or such an undertaking is a beneficiary;

  • the requisite security”, in relation to a loan secured on residential property or other land, means—

    (a)

    the security constituted by the legal estate in, or the heritable or qualifying security over, the land; or

    (b)

    in a case where an equitable interest in land in England and Wales or Northern Ireland is or is also taken as security, that constituted by that security or, as the case may be, the combined securities;

  • trust” includes arrangements—

    (a)

    which have effect under the law of a country or territory outside the United Kingdom; and

    (b)

    under which persons acting in a fiduciary capacity hold and administer property on behalf of other persons,

    and “beneficiary” and “trustees”, in relation to such arrangements, shall be construed accordingly.

(9)In the application of subsections (1), (2) and (7) above to residential property or other land in Scotland or an EEA country or territory other than the United Kingdom, references to a mortgage of the land shall be construed as references to a heritable or, as the case may require, qualifying security over the land.]

Textual Amendments

F12S. 6B inserted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 6, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(f)

Modifications etc. (not altering text)

C8S. 6B(4)(a) modified (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 46(1), 47(3), Sch. 8 para. 6(1)(a)(b); S.I. 1997/2668, art. 2, Sch. Pt. II(y)(aa)(iii)

C9S. 6B(4)(b) modified (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 46(1), 47(3), Sch. 8 para. 6(1)(c); S.I. 1997/2668, art. 2, Sch. Pt. II(y)(aa)(iii)

C10S. 6B(4)(c) modified (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 46(1), 47(3), Sch. 8 para. 6(1)(d); S.I. 1997/2668, art. 2, Sch. Pt. II(y)(aa)(iii)

Marginal Citations

[F136C Discharge of mortgages.U.K.

Schedule 2A to this Act, which contains supplementary provisions as to the discharge of mortgages, shall have effect.]

Textual Amendments

Raising funds and borrowingU.K.

[F147The funding limit.U.K.

(1)A building society shall secure that the difference between—

(a)the value of X on any quarter day; and

(b)the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,

does not exceed 50 per cent of that value of X.

(2)For the purposes of subsection (1) above—

X = the aggregate of the following, namely—

(a)the principal value of, and interest accrued on, shares in the society;

(b)the principal of, and interest accrued on, sums deposited with the society or any subsidiary undertaking of the society; and

(c)the principal value of, and interest accrued under, bills of exchange, instruments or agreements creating or acknowledging indebtedness and accepted, made, issued or entered into by the society or any such undertaking; and

Y = the principal value of, and interest accrued on, shares in the society held by individuals otherwise than as bare trustees (or, in Scotland, simple trustees) for bodies corporate or for persons who include bodies corporate.

(3)The following shall be disregarded for the purposes of subsection (2) above, namely—

(a)any sums or amounts which are own funds; and

(b)to the extent that they are not included in the total liabilities of the society and any subsidiary undertakings of the society as shown in the society’s accounts—

(i)any sums deposited with the society or any such undertaking; and

(ii)any indebtedness created or acknowledged by bills of exchange, instruments or agreements accepted, made, issued or entered into by the society or any such undertaking.

(4)The reference in subsection (3) above to anything being shown in a society’s accounts shall be construed—

(a)in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;

(b)in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.

(5)If a building society fails to comply with the requirement imposed by subsection (1) above—

(a)the powers conferred on the Commission by section 36 shall become exercisable in relation to the society; but

(b)the failure shall not affect the validity of any transaction or other act.

(6)Where an individual declares that he is acquiring any shares in a building society otherwise than as a bare trustee (or, in Scotland, a simple trustee) for a body corporate, or for persons who include a body corporate, he shall, unless the contrary is shown, be conclusively presumed for the purposes of this section to hold the shares otherwise than as such a trustee.

(7)The Commission may, with the consent of the Treasury, by order—

(a)modify subsections (2) and (3) above in their application to liabilities of subsidiary undertakings;

(b)apply those subsections to corresponding liabilities of associated undertakings; or

(c)modify those subsections in their application to such liabilities.

(8)An order under subsection (7) above may make—

(a)different provision for different circumstances;

(b)provision for particular liabilities of undertakings to be disregarded; and

(c)such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(9)The power to make an order under subsection (7) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.]

Textual Amendments

F14S. 7 substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 8, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(g)

7 Power to raise funds and borrow money and limit on non-retail funds and borrowing.U.K.

(1)Subject to the provisions of this section and sections 8 and 9, a building society may—

(a)raise funds by the issue of shares to members, or

(b)borrow money and accordingly receive deposits from any person,

to be applied for the purposes of the society.

(2)The power to raise funds by the issue of shares is a power to issue shares of one or more denominations, either as shares paid up in full or as shares to be paid by periodical or other subscriptions, and with or without accumulating interest; and funds so raised may be repaid when they are no longer required for the purposes of the society.

[F682(2A)In the case of deferred shares, the power to raise funds by the issue of shares includes the issue of shares at a premium.

(2B)If a building society issues deferred shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to the society’s reserves.]

(3)Subject to subsection (14) below, the liabilities of a building society in respect of its non-retail funds and deposits shall not exceed at any time the prescribed percentage of the society’s total liabilities at that time in respect of shares in or money deposited with the society.

[F683(4)For the purposes of subsection (3) above, a building society’s liabilities in respect of its non-retail funds and deposits are, subject to subsections (5) and (9) below, its liabilities in respect of the principal of and interest payable on or under—

(a)transferable bearer instruments

(aa)transferable non-bearer instruments

(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F683

(bb)sums deposited otherwise than in excepting circumstances or in furtherance of a savings scheme with the society by, or by a trustee for, an institution which is—

(i)an authorised institution, for the purposes of, or

(ii)an overseas institution for the purposes of Part IV of,

the Banking Act 1987;

(c)shares in the society held by, or by a trustee for, and (to the extent the liabilities do not fall within (a), (aa), or (bb) above) sums deposited with the society by, or by a trustee for—

(i)any body corporate, otherwise than in excepting circumstances,

(ii)a friendly society registered under the Friendly Societies Act 1974 F684. . ., otherwise than in furtherance of a savings scheme,

(iii)a trade union (within the meaning of the [F685Trade Union and Labour Relations (Consolidation) Act 1992]).

(d)shares in the society (to the extent the liabilities do not fall within (c) above) held by, and (to the extent the liabilities do not fall within (a), (aa), (bb) or (c) above) sums deposited with the society by—

(i)a body of persons or trust established for charitable purposes only,

(ii)the administrator of an approved retirement benefits scheme,

(iii)the manager or trustee of an appropriate personal pension scheme, or

(iv)the plan manager of a personal equity plan.]

(5)If a building society so elects with respect to any financial year its liabilities in respect of shares or deposits falling within paragraphs (c) or (d) (but no other provision) of subsection (4) above shall, subject to subsections (6) and (7) below, not be counted towards the limit in force under subsection (3) above.

(6)The liabilities of the society to any person shall not, by virtue of an election under subsection (5) above, be disregarded at any time during the financial year to which the election relates if at that time the liabilities to that person exceed the prescribed amount; and in that event all the society’s liabilities to that person shall count towards the limit in force under subsection (3) above.

(7)To be effective for the purposes of subsection (5) above, an election must apply to the society’s liabilities in respect of all its shareholders and depositors who fall within subsection (4)(c) and (d) above and notice of it must be given to the Commission before the beginning of the financial year to which it relates.

(8)A copy of the notice shall also be sent to the central office and the central office shall keep the copy in the public file of the society.

(9)The Commission may by order made with the consent of the Treasury amend subsection (4) above by adding to or deleting from it any description ofproperty or right or by varying any description of property or right for the time being specified in it and an order under this subsection may—

(a)define property or rights by reference to any criteria including the description of person who holds the property or rights,

(b)make any consequential amendment or repeal in that subsection, subsections (5) to (8) above or subsection (19) below, and

(c)make such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(10)In determining for the purposes of subsection (3) above the liabilities of a building society with which another body corporate is associated there shall, subject to subsection (13) below, be attributed to the society, in accordance with aggregation rules made by the Commission with the consent of the Treasury under this subsection, the whole or part of the liabilities of whatever description of the associated body, as provided in the rules and subject to any exceptions provided in the rules.

(11)The power to make aggregation rules under subsection (10) above includes power to make—

(a)different rules for different circumstances,

(b)provision for liabilities of societies to be disregarded; and

(c)such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(12)The power to make aggregation rules under subsection (10) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(13)The Commission may, on the application of a building society, approve rules to be applied for the purposes of subsection (3) above for the attribution to the society of liabilities of bodies associated with the society; and so long as the rules continue to be approved by the Commission they, and not the aggregation rules in force under subsection (10) above, shall apply for the attribution of liabilities for the purposes of subsection (3) above.

(14)Where money is lent to a building society by another such society in accordance with an authority given by the Commission under section 33 the liabilities in respect of the loan shall be disregarded for the purposes of subsection (3) above.

(15)The prescribed percentage for the purposes of subsection (3) above is 20 per cent. or such other percentage not exceeding 40 per cent. as is for the time being substituted for it by order of the Commission made with the consent of the Treasury.

(16)The prescribed amount for the purposes of subsection (6) above is [F686£100,000] or such other amount as is for the time being substituted for it by order of the Commission made with the consent of the Treasury.

(17)The power to make an order under subsection (9), (15) or (16) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(18)If the liabilities of a building society to which subsection (3) above applies exceed at any time the limit in force under that subsection the powers conferred on the Commission by section 36 shall become exercisable in relation to the society, but exceeding the limit shall not affect the validity of transactions effected in excess of it.

[F687(19)In this section—

  • appropriate personal pension scheme” means a personal pension scheme within the meaning of the Social Security Act 1986 in respect of which an appropriate scheme certificate under section 2 thereof (appropriate schemes) is for the time being in force;

  • excepting circumstances” means circumstances in which shares or rights of a depositor—

    (i)

    are held by the holder as nominee on behalf only of an individual, a Scottish partnership, or a combination of individuals, of such partnerships, or of both;

    (ii)

    are subject to a relevant trust in the income of which no person who is neither an individual nor a Scottish partnership has any interest; or

    (iii)

    were held by an individual as beneficial owner at the time of his death (or represent investments so held or dividends or interest thereon) and the holder is acting as personal representative of that individual;

  • intermediary” means–

    (i)

    as regards the interpretation of a savings scheme in connection with paragraph (bb) of subsection (4), an institution which is within the ambit of that paragraph, or

    (ii)

    as regards the interpretation of a savings scheme in connection with subparagraph (ii) of paragraph (c) of subsection (4), a friendly society which is within the ambit of that subparagraph;

  • personal equity plan” means a plan the operation of which is subject to conditions set out in the regulations for time being in force under Schedule 8 to the Finance Act 1986 (personal equity plans);

  • relevant trust” means a trust which is neither a trust established for charitable purposes only nor a trust of shares held or sums deposited by—

    (i)

    the administrator of an approved retirement benefits scheme,

    (ii)

    the manager or trustee of an appropriate personal pension scheme, or

    (iii)

    the plan manager of a personal equity plan;

  • retirement benefits scheme” means a retirement benefits scheme within the meaning of Chapter II of Part II of the Finance Act 1970 (occupational pension schemes) and “approved” means approved for the time being by the Commissioners of Inland Revenue for the purposes of that chapter;

  • savings scheme” means a scheme under which–

(a)shares in or rights of a depositor with the society represent sums of money placed with an intermediary by an individual under a contract under which–

(i)those sums were to be invested by the intermediary in shares of or deposited with the society, and no other society; and

(ii)those sums not to be withdrawn from the society by the intermediary except either–

(aa)on maturity of the contract by reason of the death of the individual, or the effluxion of a period of time specified in the contract, or

(bb)at the written request of the individual or any assignee of that individual’s rights under the contract and within one month of the receipt by the intermediary of such request, or within a maximum of six months of such receipt if under the contract the intermediary has the right to defer for that period the withdrawal of funds placed with the intermediary for investment in or deposit with the society, or

(cc)where the intermediary has the right to deduct an amount from the investment with the society to cover charges specified in the contract and amounts surplus to the requirements of the contract;

(b)the intermediary is obliged to produce, when requested to do so by the society, and on a date nominated by the society,

(i)a statement of the total sums invested or deposited with that society by the intermediary in furtherance of contracts made under the terms of the scheme set out in subparagraphs (i) and (ii) of paragraph (a) above, together with a certificate signed by the auditor of the intermediary confirming that the statement constitutes a true account;

(ii)any written request mentioned in subparagraph (ii) of paragraph (a) above;

  • transferable bearer instrument” means an instrument which embodies a right, transferable by delivery of the instrument, to receive an amount referable to a deposit with the society; and

  • transferable non-bearer instrument” means an instrument which embodies a right—

    (i)

    which may, under the terms of the instrument, be held by any person, or by any person other than a person of a description specified in the instrument,

    (ii)

    express provision for the transfer of which is included in the instrument, and

    (iii)

    the transfer of which, under the terms of the instrument, does not require the consent of any person,

    to receive an amount referable to a deposit with the society.]

Textual Amendments

F682S. 7(2A)(2B) inserted (3.1.1995) by 1994 c. 40, ss. 15, 82(2)(a)

F683S. 7(4) amended by S.I. 1990/2363, arts. 3(2), 3(3) and has effect as set out in Part I of the Schedule to that S.I.

F686S. 7(16): words substituted (1.9.1995) for the purposes of s. 7(6) by S.I. 1995/1873, art. 2

F687S. 7(19) amended by S.I. 1990/2363, art. 3(4) and has effect as set out in Part II of the Schedule to that S.I.

Modifications etc. (not altering text)

C135S. 7(3) modified (temp.) by S.I. 1986/2168, art. 8(1)

[F158Raising funds and borrowing.U.K.

(1)Subject to subsection (2) below, a building society shall not do any of the following things, namely—

(a)accept a deposit from an individual;

(b)raise funds from an individual otherwise than by the issue of shares; and

(c)raise funds from a body corporate, or from a bare trustee (or, in Scotland, a simple trustee) for a body corporate or for persons who include a body corporate, otherwise than by the issue of deferred shares.

(2)Nothing in subsection (1)(a) above shall apply in relation to—

(a)the maintenance on behalf of an individual of a current account, or a deposit account which contains in its title the word “client" or the word “trust" or “trustee";

(b)the issue to an individual of a transferable instrument;

(c)the acceptance from an individual of a qualifying time deposit or an overseas deposit; or

(d)in the case of a building society which has announced publicly that it intends, in accordance with section 97 and the other applicable provisions of this Act, to transfer the whole of its business to a company, anything done by the society during the period of two years beginning with the date of the announcement.

(3)The Commission may, if it thinks fit, extend or further extend the period mentioned in subsection (2)(d) above if written application is made to it before the expiry of that period or that period as extended; and a direction under this subsection—

(a)shall be in writing;

(b)may be given subject to such limitations or conditions as the Commission may think fit.

(4)A contravention of subsection (1) above shall not invalidate any transaction or other act.

(5)The power of a building society to raise funds by the issue of shares is a power—

(a)to issue shares of one or more denominations, whether in sterling or another currency; and

(b)to issue them either as shares paid up in full or as shares to be paid by periodical or other payments, and (in either case) with accumulating or other interest;

and funds so raised may be repaid when they are no longer required for the purposes of the society.

(6)In the case of deferred shares, the power of a building society to raise funds by the issue of shares includes the issue of shares at a premium.

(7)If a building society issues deferred shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to the society’s reserves.

(8)For the purposes of this section the acceptance of deposits (including the issue of debt securities) shall not constitute the raising of funds.

(9)In this section, in relation to a building society—

  • overseas deposit” means a deposit which is accepted by a branch or agency of the society in a country or territory outside the United Kingdom and is repayable in such a country or territory;

  • qualifying time deposit” has the meaning given by section 482(6) of the M6Income and Corporation Taxes Act 1988;

  • raise funds” means, subject to subsection (8) above, raise funds by the issue of shares or other securities;

  • transferable instrument” means an instrument which embodies a transferable right to receive an amount referable to a deposit with the society.

(10)A right is transferable for the purposes of the definition of “transferable instrument” in subsection (9) above if it is transferable by delivery of the instrument, or it is a right—

(a)which may, under the terms of the instrument, be held by any person, or by any person other than a person of a description specified in the instrument;

(b)express provision for the transfer of which is included in the instrument; and

(c)the transfer of which, under the terms of the instrument, does not require the consent of any person.

(11)Where an individual declares that he is acquiring any shares in a building society otherwise than as a bare trustee (or, in Scotland, a simple trustee) for a body corporate, or for persons who include a body corporate, he shall, unless the contrary is shown, be conclusively presumed for the purposes of this section to hold the shares otherwise than as such a trustee.

(12)The Commission may, with the consent of the Treasury, by order vary subsections (2), (9) and (10) above by adding to or deleting from them any provision or by varying any provision contained in them; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(13)The power to make an order under subsection (12) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.]

Textual Amendments

F15S. 8 substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 9, 47(3) (with s. 46(1), Sch. 8 para. 9); S.I. 1997/2668, art. 2, Sch. Pt. II(h)

Marginal Citations

9 Initial authorisation to raise funds and borrow money.U.K.

(1)Except to the extent permitted by subsection (3) below, a building society shall not raise money from members or accept deposits of money unless there is in force an authorisation of the Commission granted under this section or treated as granted under this section by any provisions of this Act.

(2)Authorisation under this section shall, if granted, be granted unconditionally or subject to conditions as provided by subsection (4) or (5) below.

(3)Authorisation is not required for—

(a)the acceptance of payments by way of subscription for deferred shares unless the aggregate of the payments exceeds the amount produced by multiplying the prescribed minimum for qualifying capital by the factor of 2 or such other factor as may be substituted for it by order of the Commission made with the consent of the Treasury;

(b)the acceptance of payments for amounts due in respect of shares which represent interest on, or the repayment of, advances made to the holders of shares;

(c)borrowing from a banking or finance company, or from a director or other officer of the society, if the society has obtained the consent in writing of the Commission; [F16or

(d)borrowing under section 33.]

[F17(3A)The Commission shall not grant authorisation to a society if it appears to the Commission that—

(a)the society is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society;

and in this Act 'non-EEA laws’ means laws of a country or territory outside the European Economic Area and “non-EEA administrative provisions" shall be construed accordingly.]

(4)[F18Subject to subsection (3A) above,]the Commission, on an application duly made for authorisation under this section, shall grant unconditional authorisation to the building society if it is satisfied that—

(a)the society has qualifying capital of an amount which is not less than the prescribed minimum;

(b)the chairman of the board of directors and any executive directors, the chief executive, the secretary and the managers (if any) are each fit and proper persons to hold their respective offices in the society;

(c)the board of directors, with the chief executive and secretary, have the capacity and intention to direct the affairs of the society in accordance with the criteria of prudent management and, in so far as those criteria fell to be satisfied before the date of the application, have secured that they were satisified; F19. . .

[F20(cc)each of the persons who, either alone or with any associate or associates, has a qualifying holding in the society is a fit and proper person to have such a holding; and]

(d)the investments of shareholders and depositors will be adequately protected without the imposition of conditions.

(5)[F18Subject to subsection (3A) above,]if the Commission, on an application so made, is not satisfied of the matters specified in subsection (4) above in relation to the society, it shall—

(a)if those matters are or include the matters specified in paragraphs (a) and (b), refuse to grant authorisation;

(b)in any other case, if it is satisfied that the imposition of conditions would secure the protection of the investments of shareholders and depositors, grant authorisation subject to such conditions to be complied with by the society as the Commission thinks fit to impose to secure that purpose; or

(c)if not satisfied, refuse to grant authorisation.

(6)The conditions that may be imposed under subsection (5) above on granting authorisation to a society may—

(a)relate to any activities of the society, whether or not those referred to in subsection (1) above; and

(b)require the society to take certain steps or to refrain from adopting a particular course of action or to restrict the scope of its business in a particular way.

(7)Without prejudice to the generality of subsection (6) above, conditions imposed under subsection (5) above may—

(a)impose limitations on the issue of shares, acceptance of deposits or the making of advances or other loans;

(b)require the society to take steps with regard to the conduct of the business of any [F21connected undertaking]; and

(c)require the removal of any director or other officer.

(8)The provisions of Schedule 3 to this Act regulating—

(a)the making and determination of applications for authorisation,

(b)the furnishing of information or additional information in connection with such applications, and

(c)the imposition of conditions of authorisation,

apply in relation to authorisation under this section.

(9)Conditions imposed under subsection (5) above—

(a)may be varied from time to time (and notwithstanding any pending appeal) by agreement between the Commission and the society; and

(b)may be revoked at any time by the Commission if it is satisfied that the investments of shareholders and depositors will be adequately protected without the conditions;

but paragraph (b) above is without prejudice to the power of the Commission, under Part VI, to impose other conditions.

(10)On granting authorisation to abuilding society under this section the Commission shall inform the central office of the fact and the central office shall record that fact, and the date on which the authorisation was granted, in the public file of the society.

(11)If, in contravention of subsection (1) above, a building society raises money from members or accepts deposits of money, then—

(a)the society shall be liable on conviction on indictment or on summary conviction to a fine not exceeding, on summary conviction, the statutory maximum; and

(b)any officer of the society who is also guilty of the offence shall be liable—

(i)on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or both, and

(ii)on summary conviction, to a fine not exceeding the statutory maximum;

but such a contravention does not affect any civil liability arising in respect of the acceptance or of the money accepted.

(12)Failure by a society to comply with conditions imposed under this section on granting authorisation to the society shall render it liable, if other conditions are not imposed on it under Part VI, to have its authorisation revoked under that Part.

(13)For the purposes of this section, in relation to a building society—

  • business” includes business the society proposes to carry on;

  • the prescribed minimum”, in relation to qualifying capital, is [F22ecu 1 million (or an amount of equal value denominated wholly or partly in another unit of account)] or such other sum as the Commission may specify by order made with the consent of the Treasury;

  • qualifying capital”, in relation to a building society applying for authorisation, means,

(a)the aggregate of the nominal value of the qualifying deferred shares issued at the date of the application and the amount of the reserves as shown in the last balance sheet of the society less any accumulated deficit as so shown; or

(b)where there is no balance sheet of the society, the nominal value of the qualifying deferred shares issued at the date of application; F23. . .

[F24qualifying deferred shares” means deferred shares which constitute own funds of the society,]

[F25'qualifying holding’, in relation to a building society, means a holding of deferred shares in the society which—

(a)

represents 10 per cent. or more of the qualifying deferred shares in the society;

(b)

entitles the holder to exercise or control the exercise of 10 per cent. or more of the voting power at any general meeting of the society; or

(c)

enables the holder to exercise a significant influence over the management of the society.]

[F26(13A)In determining for the purposes of subsection (4)(b) above whether a person is a fit and proper person to hold any particular office, regard shall be had, in particular—

(a)to his probity;

(b)to his competence and soundness of judgement for fulfilling the responsibilities of that office;

(c)to the diligence with which he is fulfilling or likely to fulfil those responsibilities; and

(d)to whether the interests of shareholders or depositors of the society are, or are likely to be, in any way threatened by his holding that office.]

(14)Any power of the Commission to make an order under this section is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

Textual Amendments

F16S. 9(3)(d) and word immediately preceding it repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 46(2), 47(3), Sch. 7 para. 3(1), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pt. II(w)(y)(z)(ii)(cc)(i)

F17S. 9(3A) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(1)

F18Words in s. 9(4)(5) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(1)

F19Word in s. 9(4) immediately following paragraph (c) repealed (1. 1. 1993) by S.I. 1992/3218, reg. 68(1)

F20S. 9(4)(cc) inserted (1. 1. 1993), by S.I. 1992/3218, reg. 68(1)

F21Words in s. 9(7) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 3(2); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(ii)

F22Words in s. 9(13) substituted (1. 1. 1993) by S. I. 1992/3218, reg. 68(2)(a)

F23Word in s. 9(13) preceding the definition of "qualifying deferred shares" omitted (1. 1. 1993) by virtue of S.I. 1992/3218, reg. 68(2)(b)

F24Definition in s. 9(13) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 3(3); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(ii)

F25Definition in s. 9(13) inserted (1. 1. 1993) by S.I. 1992/3218, reg. 68(2)(b)

[F27Restrictions on powers]U.K.

Textual Amendments

F27S. 9A and cross-heading inserted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 10, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(i)

[F289ARestrictions on certain transactions.U.K.

(1)Subject to subsections (2) to (4) below, a building society shall not do, and shall secure that each of its subsidiary undertakings does not do, any of the following things, namely—

(a)act as a market maker in securities, commodities or currencies;

(b)trade in commodities or currencies; and

(c)enter into any transaction involving derivative investments;

but a contravention of this subsection shall not invalidate any transaction or other act.

(2)No transaction entered into by a building society, or a subsidiary undertaking of a building society, shall be taken into account for the purposes of subsection (1)(a) above if—

(a)it relates only to securities or currencies or both and the amount or value of the consideration given by the society or undertaking does not exceed £100,000; or

(b)it is entered into in the society’s or undertaking’s capacity as the manager of a collective investment scheme.

(3)No transaction so entered into shall be taken into account for the purposes of subsection (1)(b) above if—

(a)it relates only to currencies and the amount or value of the consideration given by the society or undertaking does not exceed £100,000; or

(b)it is ancillary or incidental to another transaction entered into by the society or undertaking.

(4)Nothing in subsection (1)(c) above shall apply in relation to any transaction entered into by a building society, or a subsidiary undertaking of a building society, if—

(a)it is entered into in the society’s or undertaking’s capacity as the manager of a collective investment scheme;

(b)it is entered into for the purpose of limiting the extent to which the society, or a connected undertaking of the society, will be affected by changes in any of the following factors, namely—

(i)interest rates;

(ii)exchange rates;

(iii)any index of retail prices;

(iv)any index of residential property prices; and

(v)any index of the prices of securities; or

(c)it involves a derivative investment falling within paragraph (d) of the definition in subsection (9) below and it is entered into for the purpose of limiting the extent to which any person will be affected by changes in any interest or exchange rate applicable to—

(i)a loan owed by him to;

(ii)shares held by him in; or

(iii)a deposit of his with,

the society, or a connected undertaking of the society.

(5)Nothing in subsection (1)(c) above shall apply in relation to any transaction entered into by a subsidiary undertaking of a building society, if it is entered into in the undertaking’s capacity—

(a)as a body authorised under section 3 or 4 of the M7Insurance Companies Act 1982 (authorised insurance companies) to carry on insurance business of a class specified in Schedule 1 to that Act (classes of long term business); or

(b)as an EC company which is authorised under Article 6 of the first long term insurance Directive;

and in this subsection expressions which are also used in that Act have the same meanings as in that Act.

(6)A building society shall also do all that is reasonably practicable to secure that neither it nor any of its subsidiary undertakings (either alone or with any or any others of those undertakings)—

(a)holds at any time more than 5 per cent of the issued share capital; or

(b)is at any time entitled to exercise, or to control the exercise of, more than 5 per cent of the voting power at any general meeting,

of an undertaking which is, at that time, doing any of the things which the society is prohibited from doing by subsection (1) above, or an undertaking whose subsidiary undertaking is, at that time, doing any of those things.

(7)The monetary limit in subsection (2) or (3) above refers to the time when the transaction is entered into; and where the amount or value of the consideration there referred to is not in sterling, it shall be converted at the rate of exchange prevailing at that time.

(8)For the purposes of subsection (2) or (3) above, two or more transactions which form part of a larger transaction or series of transactions shall be treated as a single transaction.

(9)In this section—

  • collective investment scheme” has the same meaning as in the M8Financial Services Act 1986;

  • commodity” means any produce of agriculture, forestry or fisheries, or any mineral, either in its natural state or having undergone only such processes as are necessary or customary to prepare the produce or mineral for the market;

  • derivative investment” means any investment of a description falling within one or more of the following paragraphs of Part I of Schedule 1 to the Financial Services Act 1986, namely—

    (a)

    paragraph 4 (instruments entitling to shares or securities);

    (b)

    paragraph 7 (options);

    (c)

    paragraph 8 (futures); and

    (d)

    paragraph 9 (contracts for differences etc);

  • market maker” means, subject to subsection (10) below, a person who holds himself out as willing at all normal times to buy or sell at a price specified by him securities, commodities or currencies of a particular description;

  • securities” means shares, stock, debentures, debenture stock, loan stock, bonds, units of a collective investment scheme and other securities of any description.

(10)A building society, or subsidiary undertaking of a building society, shall not by reason of holding itself out as willing to issue its own securities be regarded for the purposes of this section as acting as a market maker in such securities.

(11)The Treasury may by order vary subsections (1) to (10) above by adding to or deleting from them any provision or by varying any provision contained in them.

(12)The Commission may, with the consent of the Treasury, by order—

(a)substitute for the amount specified in subsection (2) or (3) above, or for the percentage specified in subsection (6) above, such other amount or percentage as it thinks appropriate; or

(b)vary subsection (4)(b) above by adding to or deleting from it any reference to a factor or by varying any reference to a factor contained in it.

(13)An order under subsection (11) or (12) above may make—

(a)different provision for different cases or purposes; and

(b)such supplementary, transitional and saving provision as appears to the Treasury or, as the case may be, the Commission to be necessary or expedient;

and the power to make such an order is exercisable by statutory instrument.

(14)No order shall be made under subsection (11) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(15)A statutory instrument containing an order under subsection (12) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.]

Textual Amendments

F28S. 9A and cross-heading inserted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 10, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(i)

Marginal Citations

[F299BRestriction on creation of floating charges.U.K.

(1)A building society shall not create a floating charge on the whole or part of its undertaking or property.

(2)A floating charge created in contravention of this section shall be void.]

Textual Amendments

F29S. 9B inserted (9.6.1997) by 1997 c. 32, s. 11; S.I. 1997/1427, art. 2

[F30Part IIIU.K. Advances, Loans and Other Assets]

Textual Amendments

F30Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Class 1 advances and class 2 advances secured on landU.K.

[F3110 Advances secured on land.U.K.

(1)A building society may make advances to members (in this Act referred to as “advances secured on land”) secured by—

(a)a mortgage of a legal estate or, as provided under subsection (6) below, an equitable interest in land in England and Wales or Northern Ireland, or

(b)a heritable security over land in Scotland,

and for that purpose may (in England and Wales or Northern Ireland) hold land with the right of foreclosure.

(2)Advances secured on land may, in accordance with sections 11 and 12—

(a)be fully or partly secured by a mortgage of the legal estate or equitable interest in land in England and Wales or Northern Ireland, or

(b)be fully secured by a heritable security over land in Scotland,

and in this Part “the basic security” means the security constituted by the legal estate in or heritable security over the land or, in a case where an equitable interest in land in England and Wales or Northern Ireland is or is also taken as security by virtue of this section, that constituted by that security or, as the case may be, the combined securities; and a reference to the land which is to secure an advance or on which an advance is secured is a reference to the estate or interest or the heritable security which constitutes or will constitute the basic security.

(3)The power to make an advance secured on land includes power, subject to the restriction imposed by subsection (4) below, to make, as a separate advance, an advance which is to be applied in or towards payment of the deposit for the purchase of the land (in this Part referred to as “an advance for a deposit for the purchase of land.”)

(4)The restriction referred to is that an advance for a deposit for the purchase of land must not exceed 10 per cent. of the total amount to be paid for the purchase of the land.

[F32(4A)The power to make an advance secured on land includes power to make an advance which is secured as mentioned in subsection (1) above by virtue of security granted otherwise than by the borrower (in this Act referred to as “an advance secured on third party land”).]

(5)An advance shall be treated for the purposes of this Act as secured by a mortgage of a legal estate in registered land in England and Wales or Northern Ireland notwithstanding that the advance is made before the [F33mortgagor] is registered as proprietor of the estate.

(6)A building society may advance money on the security of an equitable interest in land in England and Wales or Northern Ireland if the equitable interest is an equitable interest in land of a description and is created in circumstances prescribed in an order made by the Commission with the consent of the Treasury under this subsection and any conditions prescribed in the order are complied with.

(7)Any powers conferred on building societies by an order under subsection (6) above may be conferred on building societies of a description specified in the order or all building societies other than those of a description so specified.

(8)The power to make an order under subsection (6) above includes power—

(a)to prescribe the circumstances in which the power conferred by section 17(10) on building societies of the description specified therein is to be available to them; and

(b)to make such incidental, supplementary and transitional provision as the Commission considers necessary or expedient.

(9)An instrument containing an order under subsection (6) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(10)The power to make advances secured on land includes power to make them on terms that include provision as respects the capital element in the mortgage debt (with or without similar provision as respects the interest element)—

(a)that the amount due to the society may be adjusted from time to time by reference to such public index of prices other than housing prices as is specified in the mortgage;

(b)that the amount due to the society may be adjusted from time to time by reference to such public index of housing prices as is specified in the mortgage;

(c)that the amount due to the society at any time shall be determined by reference to a share, specified or referred to in the mortgage, in the open market value of the property at that time;

and, in cases where the amount due to the society in respect of capital exceeds the amount advanced, references in this Act to the repayment of an advance include references to payment of the excess.

(11)Advances secured on land shallbe classified for the purposes of the requirements of this Part for the structure of commercial assets into—

(a)class 1 advances, and

(b)class 2 advances;

and in this Act “advances fully secured on land” means advances which are class 1 or class 2 advances, and any reference to “fully secured” shall be construed accordingly.

(12)Nothing in this section or section 11 or 12 is to be taken as precluding a society from taking other security for an advance secured on land than such security as is required for an advance to be a class 1 or class 2 advance under those sections; but the value of the other security shall be disregarded for the purpose of classifying the advance as a class 1 or class 2 advance.]

Textual Amendments

F31Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

F32S. 10(4A) inserted (3.1.1995) by 1994 c. 40, ss. 16(2), 82(2)(a)

F33Word in s. 10(5) substituted (3.1.1995) by 1994 c. 40, ss. 39, 82(2)(e), Sch. 11 para. 7(2)

Modifications etc. (not altering text)

C11S. 10 restricted (1. 7. 1992) by S.I. 1992/1547, arts. 5, 6, Sch. 2

[F3411 Class 1 and class 2 advancesU.K.

(1)The provisions of this section and section 12 define what is a class 1 advance and what is a class 2 advance for the purpose of the requirements of this Part for the structure of commercial assets and when an advance may, for those purposes, be treated partly as a class 1 advance and partly as a class 2 advance.

(2)Class 1 advances are advances as to which the society when it makes the advance is satisfied that the advance is an advance secured on land and that—

(a)the borrower is an individual;

(b)[F35where the advance is not an advance secured on third party land,]the land is for the residential use of the borrower or a dependant of his of a prescribed description;

[F36(ba)where the advance is an advance secured on third party land—

(i)the borrower intends that the advance will be used for the purpose of acquiring land for the residential use of himself or a dependant of his of a prescribed description; and

(ii)the land on which the advance is secured is for the residential use of the mortgagor or a dependant of his of a prescribed description;]

(c)the amount advanced will not exceed the value of the basic security (after deducting from that value any [F37outstanding amount secured by a mortgage of the land in favour of the society)]; and

(d)subject to subsection (5) below, no other mortgage of the land which is to secure the advance is outstanding in favour of a person other than the society;

and which are not made on terms as respects the capital element of the mortgage debt authorised by section 10(10)(b) or (c).

(3)Subject to any order made under section 12(1),

[F38(a)]the requirement in subsection (2)(b) above shall be treated as satisfied if no less than 40 per cent. of the area of the land is used for the residential purposes by the borrower or a dependant of his of a prescribed description;

[F39(b)the requirement in subsection (2)(ba)(i) above shall be treated as satisfied if the borrower intends that no less than 40 per cent. of the area of the land will be for the residential use of himself or a dependant of his of a prescribed description; and

(c)the requirement in subsection (2)(ba)(ii) above shall be treated as satisfied if no less than 40 per cent. of the area of the land is used for residential purposes by the mortgagor or a dependant of his of a prescribed description.]

(4)Class 2 advances are advances as to which the society when it makes the advance—

(a)either is not satisfied that the requirements for the time being of subsection (2) above are fulfilled or is satisfied that any of them is not fulfilled, but

(b)is satisfied that the advance is an advance secured on land, and

(c)is satisfied, where the amount advanced will exceed the value of the basic security (after deducting from that value any [F40outstanding amount secured by a mortgage of the land)], that the excess will be secured by the taking of security of a prescribed description in addition to the basic security, and

(d)is satisfied that no, or no more than one, other mortgage of the land which is to secure the advance is outstanding in favour of a person other than the society.

(5)The requirement in subsection (2)(d) and (4)(d) above shall be treated as satisfied if the advance is made on terms that the other mortgage is redeemed or postponed to the basic security.

(6)An advance for a deposit for the purchase of land is also a class 1 or class 2 advance according as it is made with a view to the making of a class 1 or class 2 advance secured on the land.

(7)Advances which would be class 2, and not class 1, advances by reason only that the extent of the residential use of the land is not such as to satisfy the requirement in subsection (2)(b) [F41or (2)(ba)(i) or (ii)] above shall be treated as class 1 advances if and to the extent prescribed by an order under section 12(5).

(8)For the purposes of the requirements of this Part for the structure of commercial assets—

(a)class 1 advances constitute class 1 assets, and

(b)class 2 advances constitute class 2 assets,

and accordingly the aggregate amount of mortgage debts outstanding in respect of class 2 advances counts in accordance with section 20 towards the limit applicable to class 2 assets under that section.

(9)For the purposes of subsections (2) and (4) above, where a building society makes an advance by instalments, any reference to the time when the society makes the advance is a reference to the time when it pays the first of the instalments, disregarding for this purpose any instalment which is to be applied towards payment of the deposit in respect of the purchase of the land which is to secure the advance.

(10)Subject to subsection (11) below, any land to which a building society becomes absolutely entitled by foreclosure or by release or other extinguishment of a right of redemption—

(a)shall as soon as may be conveniently practicable be sold or converted into money; and

(b)shall, until the sale or conversion, constitute a class 1 asset if the advance secured on the land was a class 1 advance and a class 2 asset if it was a class 2 advance.

(11)Where a building society which has for the time being adopted the powers conferred by section 17 becomes entitled to land as mentioned in subsection (10) above, and the land is land that may be held under that section, then, if the society—

(a)elects to hold the land under that section, or

(b)without such an election, retains the land after the expiry of the period of twelve months immediately following the date on which it so becomes entitled to the land.

the society shall be taken to hold the land under that section.

(12)An election under subsection (11) above shall be made by resolution of the board of directors and shall be irrevocable.

(13)If a building society contravenes subsection (10) above the society shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale and so shall any officer who is also guilty of the offence.

(14)For the purposes of this Act, the mortgage debt at any time, in relation to an advance secured on land, is the total amount outstanding at that time in respect of—

(a)the principal of the advance;

(b)interest on the advance; and

(c)any other sum which the borrower is obliged to pay the society under the terms of the advance.

(15)The reference in subsection (10) above to land to which a building society becomes absolutely entitled by foreclosure includes a reference to land which a building society has acquired by virtue of a decree of foreclosure under section 28 of the M9Conveyancing and Feudal Reform (Scotland) Act 1970.]

Textual Amendments

F34Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

F35Words in s. 11(2)(b) inserted (3.1.1995) by 1994 c. 40, ss. 16(3)(a), 82(2)(a)

F37Words in s. 11(2)(c) substituted (3.1.1995) by 1994 c. 40, ss. 16(3)(c), 82(2)(a)

F38Words in s. 11(3) renumbered as s. 11(3)(a) (3.1.1995) by 1994 c. 40, ss. 16(4), 82(2)(a)

F40Words in s. 11(4)(c) substituted (3.1.1995) by 1994 c. 40, ss. 16(5), 82(2)(a)

F41Words in s. 11(7) inserted (3.1.1995) by 1994 c. 40, ss. 39, 82(2)(e), Sch. 11 para. 7(3)

Modifications etc. (not altering text)

C14S. 11(1)-(7), (9)-(13)(15) restricted (1. 7. 1992) by S.I. 1992/1547, arts. 5, 6, Sch. 2

C15S. 11(2)(b) extended by S.I. 1986/2169, art. 5(2)

Marginal Citations

[F4212 Class 1 and class 2 advances: supplementary provisions.U.K.

(1)The Commission, by order in a statutory instrument, may as respects class 1 advances—

(a)specify the circumstances in which land is for a person’s residential use,

(b)specify who are to be a person’s dependants, and

(c)make such other incidental and supplementary and such transitional provision as the Commission considers necessary or expedient,

for the purposes of section 11(2); and in that subsection “prescribed” means prescribed in an order under this subsection.

(2)Without prejudice to the generality of subsection (1)(c) above, an order may prescribe evidence on which a building society is to be entitled to be satisfied (in the absence of evidence to the contrary) that the requirements of section 11(2) are fulfilled as respects an advance secured on land.

(3)The Commission, by order in a statutory instrument, may as respects class 2 advances—

(a)specify descriptions of security falling within this subsection which, for the purposes of paragraph (c) of section 11(4), may be taken for class 2 advances in addition to the basic security; and

(b)make such other incidental or supplementary and such transitional provision as it considers necessary or expedient for the purposes of paragraph (c) or (d) of that subsection;

and in that subsection “prescribed” means prescribed in an order under this subsection.

(4)The descriptions of additional security which fall within subsection (3)(a) above are guarantees, indemnities or other contractual promises made by virtue of, or by a public body established by or under, any enactment for the time being in force.

(5)The Commission, by order in a statutory instrument, may, as respects advances to be secured on land which is to any extent to be used for the residential use of borrowers or persons who are dependants of theirs for the purposes of section 11(2)—

(a)require so much of the amount to be advanced as is determined by or under the order to be treated as a class 1 advance;

(b)specify the circumstances in which and the conditions subject to which advances are to be so treated; and

(c)make such incidental, supplementary and transitional provision as the Commission considers necessary or expedient.

[F43(5A)Subsection (5) above shall also apply as respects advances secured on third party land which is to any extent used for the residential use of mortgagors or persons who are dependants of theirs for the purposes of section 11(2).]

(6)The Commission shall not make an order under this section, except with the consent of the Treasury.

(7)An instrument containing an order under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(8)For the purpose of facilitating the repayment to a building society of a class 1 advance or a class 2 advance, the society may make to the borrower, by way of addition to the advance, a further advance of or towards the cost of a single premium payable in respect of an appropriate policy of life assurance; and a sum added to an advance under this subsection shall be treated as not forming part of the advance for the purpose of determining whether the requirements of section 11(2) or (4) are satisfied with respect to the advance.

(9)Where an advance secured on land in England and Wales or Northern Ireland is made, then, for the purpose of determining whether the land is subject to a prior mortgage for the purposes of section 11(2)(d) or (4)(d) above, any outstanding charge over the land which is registered—

(a)in the case of land in England and Wales, in the appropriate local land charges register, and

(b)in the case of land in Northern Ireland, in the statutory charges register under section 87 of, and Schedule 11 to, the M10Land Registration Act (Northern Ireland) 1970,

shall be disregarded.

(10)If at any time when a class 1 advance or a class 2 advance secured on land is outstanding the building society—

(a)is satisfied on a revaluation that the value of the basic security has changed,

(b)is satisfied that so much of the mortgage debt as represents the principal of the advance has changed,

(c)[F44 in the case of an advance which is not an advance secured on third party land]is satisfied on notice given to it by the borrower that there has been a change in the use of the land,

[F45(ca)in the case of an advance which is an advance secured on third party land—

(i)is satisfied on notice given to it by the borrower that there has been a change in the use of the land acquired with the advance, or

(ii)is satisfied on notice given to it by the mortgagor that there has been a change in the use of the land on which the advance is secured, or]

(d)agrees to a change in the relative priority of the mortgage on which the advance is secured,

and is satisfied that the change is such that, if it were to make an advance equal to the mortgage debt at that time, the advance would instead be a class 2 advance or a class 1 advance, as the case may be, the advance shall be reclassified as from that time.

(11)Nothing in subsection (10) above requires a building society to revalue its securities from time to time.

(12)Every building society shall establish and maintain a system to ensure the safe custody of all documents relating to property mortgaged to the society.

(13)In this section “appropriate policy of life assurance”, with reference to an advance, means a policy of insurance which satisfies the following requirements, that is to say—

(a)the life assured is that of the person to whom the advance is made or his spouse, his son or his daughter, and

(b)it provides, in the event of the death, before the advance has been repaid, of the person on whose life the policy is effected, for payment of a sum not exceeding the amount sufficient to defray the sums which are, at and after the time of the death, payable to the society in respect of the advance and any addition made in respect of the premium.]

Textual Amendments

F42Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

F43S. 12(5A) inserted (3.1.1995) by 1994 c. 40, ss. 16(6), 82(2)(a)

F44Words in s. 12(10)(c) inserted (3.1.1995) by 1994 c. 40, ss. 16(7)(a), 82(2)(a)

F45S. 12(1)(ca) substituted for word in s. 12(1)(c) (3.1.1995) by 1994 c. 40, ss. 16(7)(b), 82(2)(a)

Modifications etc. (not altering text)

C18S. 12(1)-(11)(13) restricted (1. 7. 1992) by S.I. 1992/1547, arts. 5, 6, Sch. 2

C19S. 12(12) excluded (temp) by S.I. 1986/2168, art. 12(2)(a)

Marginal Citations

[F4613 Security for advances: valuation and supplementary and related provisions.U.K.

(1)It shall be the duty of every director of a building society to satisfy himself that the arrangements made for assessing the adequacy of the security for any advance to be fully secured on land which is to be made by the society are such as may reasonably be expected to ensure that—

(a)an assessment will be made on the occasion of each advance whether or not any previous assessment was made with a view to further advances or re-advances;

(b)each assessment will be made by a person holding office in or employed by the society who is competent to make the assessment and is not disqualified under this section from making it;

(c)each person making the assessment will have furnished to him a written report on the value of the land and any factors likely materially to affect its value made by a person who is competent to value, and is not disqualified under this section from making a report on, the land in question;

but the arrangements need not require each report to be made with a view to a particular assessment so long as it is adequate for the purpose of making the assessment.

(2)In relation to any land which is to secure an advance, the following persons are disqualified from making a report on its value, that is to say—

(a)the directors and any other officer or employee of the society who makes assessments of the adequacy of securities for advances secured on land or who authorises the making of such advances;

(b)where the society has made, or undertaken to make, to any person a payment for introducing to it an applicant for the advance, that person;

(c)where the advance is to be made following a disposition of the land, any person having a financial interest in the disposition of the land and any director, other officer or employee of his or of an associated employer; F47. . .

(d)where the advance is to be made following a disposition of the land, any person receiving a commission for introducing the parties to the transaction involving the disposition and any director, other officer or employee of his.

[F48(e)where the advance is to be made in connection with a disposition of other land to the borrower, any person having a financial interest in the disposition of the other land and any director, other officer or employee of his or of an associated employer; and

(f)where the advance is to be made in connection with a disposition of other land to the borrower, any person receiving a commission for introducing the parties to the transaction involving the disposition and any director, other officer or employee of his.]

(3)In relation to any land which is to secure an advance where the advance is to be made following a disposition of the land [F49or in connection with a disposition of other land to the borrower], the following persons are disqualified from making an assessment of the security or authorising the making of the advance, that is to say—

(a)any person, other than the building society making the advance, having a financial interest in the disposition F50. . . and any director, other officer or employee of his or of an associated employer; and

(b)any person receiving a commission for introducing the parties to the transaction involving the disposition and any director, other officer or employee of his.

(4)Any person who, being disqualified from doing so—

(a)makes a report on any land which is to secure an advance,

(b)makes an assessment of the adequacy of the security for an advance, or

(c)authorises the making of an advance,

and in the case of a person making a report does so knowing or having reason to believe that the report will be used or is likely to be used for the purposes of the advance, shall be liable on summary conviction to a fine not exceeding level 4 on the standard scale.

(5)For the purposes of this section, any two employers are associated if one is a body corporate of which the other (directly or indirectly) has control or if both are bodies corporate of which a third person directly or indirectly has control; and the expression “associated employer” shall be construed accordingly.

(6)In this section “commission” includes any gift, bonus or benefit and, for its purposes, a person shall be taken to have a financial interest in the disposition of any land if, but only if, he would, on a disposition of that land, be entitled (whether directly or indirectly, and whether in possession or not) to the whole or part of the proceeds of the disposition.

F46(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F46Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b)(o)(i), II(j)

F47Word immediately preceding s. 13(2)(d) repealed (3.1.1995) by 1994 c. 40, ss. 81, 82(2)(g), Sch. 17

F49Words in s. 13(3) inserted (3.1.1995) by 1994 c. 40, ss. 39, 82(2)(e), Sch. 11 para. 7(5)(a)

Modifications etc. (not altering text)

C21S. 13 modified by S.I. 1986/2169, art. 6

C23S. 13(7) restricted (1. 7. 1992) by S.I. 1992/1547, arts. 5, 6, Sch. 2

Other advances secured on landU.K.

[F5114 Power to make advances secured on land overseas.U.K.

(1)The appropriate authority may, with a view to conferring on building societies or building societies of particular descriptions powers to make advances to members secured on land outside the United Kingdom corresponding to the powers to make advances secured on land within the United Kingdom, by order—

(a)designate countries or territories outside the United Kingdom as countries or territories as respects which advances under this section may be made secured on the land;

(b)specify, or provide for the specification by direction of the Commission under the order of, the forms of security on land which may be taken for advances under this section, in any prescribed circumstances and subject to any prescribed conditions;

(c)determine, or provide for the determination under the order of, the classification of the advances (and accordingly of the mortgage debts) as class 1 advances or class 2 advances for the purposes of the requirements of this Part for the structure of commercial assets;

(d)provide for the application of the provisions of this Part applicable to advances secured on land to advances under this section with such modifications as appear to be appropriate;

(e)provide for any other provisions of this Act to have effect in relation to advances under this section with such modifications as appear to be appropriate; and

(f)make such incidental, supplemental or transitional provision as appears to be necessary or expedient.

(2)Any powers conferred on building societies under this section may be conferred on building societies of a specified description or all building societies other than those of a specified description.

(3)Where, by virtue of an order under subsection (1) above, advances are made by a building society on the security of land outside the United Kingdom, the aggregate amount of mortgage debts outstanding in respect of such of those advances as are class 2 advances under the order shall count in accordance with section 20 towards the limit applicable to class 2 assets under that section.

(4)Subsection (3) above is subject to any provision contained in the order.

(5)The “appropriate authority” for making an order under subsection (1) above is—

(a)as regards the relevant British overseas territories, the Commission acting with the consent of the Treasury, and

(b)as regards other countries or territories, the Treasury.

(6)An order under this section made as regards any of the relevant British overseas territories may make all or any of the powers conferred thereby exercisable by building societies without the need for adoption, but, in the absence of such a provision any power conferred under this section must, in order to be exercisable by a building society, be adopted by the society.

(7)The power to make an order under subsection (1) above is exercisable by statutory instrument and, as regards the procedure applicable to such an order,—

(a)if the instrument designates other countries or territories than any of the relevant British overseas territories, the order shall not be made unless a draft of it has been laid before and approved by resolution of each House of Parliament, and

(b)if the instrument designates any relevant British overseas territory and no other country or territory, the instrument shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(8)In this section—

  • relevant British overseas territories” means the Channel Islands, the Isle of Man and Gibraltar;

  • security on land” includes any right or power in or over land to secure the payment of a debt and “secured on land” has a corresponding meaning;

  • specified” means specified in an order under subsection (1) above;

and any reference to a provision of this Part is a reference to that provision as applied to advances under this section.]

Textual Amendments

F51Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

[F52F5314A Power to participate in secured syndicated lending.U.K.

(1)Subject to subsection (2) below, a building society may participate in syndicated lending—

(a)as a member of the lending syndicate, or

(b)as a person whose rights as a participant arise under an arrangement with a member of the lending syndicate (“a sub-participant”).

(2)Subsection (1) above only applies if—

(a)the syndicated lending is appropriately secured, and

(b)where the society’s participation is as a sub-participant, the society’s rights as such a participant are appropriately secured.

(3)The Commission may, with the consent of the Treasury, by order—

(a)make provision with respect to what constitutes appropriate security for the purposes of subsection (2)(a) or (b) above;

(b)make provision with respect to the classification, for the purposes of the requirements of this Part for the structure of commercial assets, of a society’s participation under this section in syndicated lending; and

(c)provide for the application of the provisions of this Part, with such modifications as appear to the Commission to be appropriate, to a society’s participation under this section in syndicated lending.

(4)The power conferred by subsection (3) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.

(5)A building society may only exercise the power conferred by this section if it has adopted it.]

Textual Amendments

F52S. 14A inserted (3.1.1995) by 1994 c. 40, ss. 17(1), 82(2)(a)

F53Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Other commercial assetsU.K.

[F5415 Loans for mobile homes.U.K.

(1)Subject to the provisions of this section, a building society may make mobile home loans to individuals, whether or not they are members of the society.

(2)A mobile home loan is a loan made for the purchase of a mobile home and secured by such security as the Commission may, with the consent of the Treasury, prescribe by order in a statutory instrument.

(3)No such loan shall be made unless the building society, when it makes the loan, is satisfied that—

(a)the borrower or a dependant of his of a prescribed description is or will be entitled under an agreement to which the M11Mobile Homes Act 1983 applies to station the mobile home on land forming part of a protected site;

(b)the mobile home is for the residential use of the borrower or a dependent of his of a prescribed description;

(c)the amount lent will not exceed the amount likely to be realised on a sale of the mobile home on the open market; and

(d)subject to subsection (4) below, no other security prescribed under subsection (2) above which is to secure the loan is outstanding in favour of a person other than the society.

(4)The requirement in subsection (3)(d) above shall be treated as satisfied if the loan is made on terms that the other loan is redeemed or postponed to it.

(5)A building society shall not make a mobile home loan to an individual if the principal exceeds—

(a)the limit for the time being imposed by or under subsection (7) below; or

(b)the balance remaining after deducting from that limit the aggregate of any other sums outstanding in respect of loans made under this section or section 16 by the society to that individual [F55and any facility limits agreed for the time being between the society and that individual][F56and also the cost of leasable chattels bailed under any current leasing agreement between the society and that individual];

and if two or more loans under this section or this section and section 16 are made simultaneously by the society to the same individual they shall be treated for the purposes of this subsection as a single loan of an amount equal to the aggregate of the principal of each of those loans.

(6)Joint borrowers under this section shall be treated, for the purpose of the limit on loans under this section, as a single individual and any sums outstanding in respect of loans made under this section or section 16 by the society to any one of the joint borrowers [F57and also the cost of leasable chattels bailed under any current leasing agreement between the society and any one of the joint borrowers are] to be taken into account in determining the balance available for any further loan to him or to him and any joint borrower with him [F58, and so is any facility limit which is agreed for the time being between the society and any one of the joint borrowers].

(7)The limit on loans to any one individual under this section is £10,000 or such sum as the Commission may, with the consent of the Treasury, specify by order in a statutory instrument.

(8)Loans under this section constitute class 3 assets for the purposes of the requirements of this Part for the structure of commercial assets and accordingly the aggregate of the amounts outstanding in respect of—

(a)the principal of loans under this section,

(b)the interest on those loans, and

(c)any other sums which borrowers are obliged to pay the society under the terms of those loans,

counts in accordance with section 20 towards the limits applicable to class 3 assets under that section.

(9)The power conferred by this section is not available to a building society which does not for the time being have a qualitying asset holding, but the cessation of its availability does not require the disposal of any property or rights.

(10)The power conferred by this section on a building society, if available to it, must in order to be exercisable, be adopted by the society.

(11)An instrument containing an order under subsection (2) or (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(12)In this section—

  • [F59facility limit” has the meaning which it has for the purposes of the Building Societies (Limited Credit Facilities) Order 1987;]

  • [F60leasable chattels”, “bailed” and “leasing agreement” have the meanings which they respectively bear in Part III of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988 and “cost”, in respect of any leasable chattel bailed by a building society, means the price at which it was acquired by the society;]

  • mobile home” has the same meaning as “caravan” in Part I of the M12Caravan Sites and Control of Development Act 1960;

  • prescribed”, in relation to descriptions of dependants of borrowe rs, means such as are for the time being prescribed in an order under section 12(1) as respects class 1 advances; and

  • protected site” has the same meaning as in the M13Mobile Homes Act 1983.]

Textual Amendments

F54Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

F59Definition inserted by S.I. 1987/1975, art. 8(1), Sch. 1 para. 3

F60Definitions inserted by S.I. 1988/1141, art. 4(1), Sch. 2 para. 3

Marginal Citations

[F6116 Power to lend to individuals otherwise than by class 1 or class 2 advances etc.U.K.

(1)Subject to the provisions of this section, a building society may, with or without security and whether or not at interest, lend money to individuals, whether or not they are members of the society.

(2)Advances fully secured on land do not constitute loans under this section except that an advance for a deposit for the purchase of land shall, if the purchase is not completed within the period of six months beginning with the date of the advance, be treated after the end of that period as a loan under this section and shall accordingly cease to be a class 1 or class 2 advance.

(3)Mobile home loans do not constitute loans under this section [F62and neither do bridging loans made under Part IV of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988].

(4)The power to lend money under this section includes power, as regards members of and depositors with the society, to lend on overdraft on such terms as the society thinks fit.

(5)Subject to subsection (9) below a building society shall not make a loan to an individual under this section if the principal exceeds—

(a)the limit for the time being imposed by or under subsection (8) below; or

(b)the balance remaining after deducting from that limit the aggregate of any other sums outstanding in respect of loans made under this section by the society to that individual [F63and any facility limits agreed for the time being between the society and that individual][F64and also the cost of leasable chattels bailed under any current leasing agreement between the society and that individual];

and if two or more loans under thissection or this section and section 15 are made simultaneously by the society to the same individual they shall be treated for the purposes of this subsection as, in the case of loans under this section, a single loan of an amount equal to the aggregate of the principal of each of those loans and, in the case of loans under this section and section 15, as made on different occasions such that loans under section precede those made under that section.

(6)Subsection (5) above shall have effect (subject to subsection (9) below) in a case where a building society has made a loan under section 15 as if it precluded a building society from making a loan to an individual under this section if the principal exceeds—

(a)the limit referred to in paragraph (a) of it; or

(b)the balance referred to in paragraph (b) of it; or

(c)the balance remaining after deducting from the limit imposed by or under subsection (7) of that section the aggregate of any sums outstanding in respect of loans made under that section and under this section by the society to that individual [F65and any facility limits agreed for the time being between the society and that individual][F66and also the cost of leasable chattels bailed under any current leasing agreement between the society and that individual].

(7)Joint borrowers under this section shall be treated, for the purpose of the limit on loans under this section, as a single individual and any sums outstanding in respect of loans made under this section or section 15 by the society to any one of the joint borrowers [F67and also the cost of leasable chattels bailed under any current leasing agreement between the society and any one of the joint borrowers are] to be taken into account in determining the balance available for any further loan to him or to him and any joint borrower with him [F68, and so is any facility limit which is agreed for the time being between the society and any one of the joint borrowers].

(8)The limit on loans to any one individual under this section is £5,000 or such other sum as the Commission may, with the consent of the Treasury, specify by order in a statutory instrument.

(9)The limit on loans to any one individual under this section does not apply to an advance for a deposit for the purchase of land which has come to be treated as a loan under this section and accordingly no account shall be taken of it for the purposes of subsection (5) above.

(10)An order under subsection (8) above may specify different sums as the limit in relation to individuals in different circumstances.

(11)Loans under this section constitute class 3 assets for the purposes of the requirements of this Part for the structure of commercial assets and accordingly the aggregate of the amounts outstanding in respect of—

(a)the principal of loans under this section,

(b)the interest on those loans,and

(c)any other sums which borrowers are obliged to pay the society under the terms of those loans,

counts in accordance with section 20 towards the limits applicable to class 3 assets under that section.

(12)The power conferred by this section is not available to a building society which does not for the time being have a qualifying asset holding, but the cessation of its availability does not require the disposal of any property or rights.

(13)The powers conferred by this section on a building society, if available to it, must, in order to be exercisable, be adopted by the society.

(14)An instrument containing an order under subsection (8) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(15)If at any time when a loan under this section which is secured by a mortgage of any land is outstanding, the building society is satisfied—

(a)on a revaluation, that the value of the security has changed,

(b)[F69where the mortgage is granted by the borrower,] on notice given to it by the borrower that there has been a change in the use of the land,

[F70(c)where the mortgage is granted otherwise than by the borrower and the loan has been used to purchase land—

(i)on notice given to it by the borrower that there has been a change in the use of the land purchased, or

(ii)on notice given to it by the mortgagor that there has been a change in the use of the mortgaged land, or

(d)on notice given to it—

(i)where the mortgage is granted by the borrower, by him, and

(ii)where the mortgage is granted otherwise than by the borrower, by the mortgagor,]

that there has been a change in the relative priority of the mortgage and that the change is such that, if it were to make a loan equal to the mortgage debt at that time and on that security, the loan would be a class 1 advance or, as the case may be, a class 2 advance, then the outstanding loan shall be reclassified as from that time.

(16)Nothing in subsection (15) above requires a building society to revalue its securities from time to time.

[F71(17)In this section—

  • facility limit” has the meaning which it bears in the Building Societies (Limited Credit Facilities) Order 1987; and

  • leasable chattels”, “bailed” and “leasing agreement” have the meanings which they respectively bear in Part III of Schedule 1 to the Building Societies (Commercial Assets and Services) Order 1988 and “cost”, in respect of any leasable chattel bailed by a building society, means the price at which it was acquired by the society.]]

Textual Amendments

F61Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

F69Words in s. 16(15)(b) inserted (3.1.1995) by 1994 c. 40, ss. 16(8)(a), 82(2)(a)

F70S. 16(15)(c)(d) substituted for words in s. 16(15) (3.1.1995) by 1994 c. 40, ss. 16(8)(b), 82(2)(a)

[F7217 Power to hold and develop land as commercial asset.U.K.

(1)Subject to subsections (2), (9) and (11) below, a building society may acquire, hold and dispose of land in the United Kingdom for purposes other than those for which it may acquire, hold or dispose of land under section 6 or 10.

(2)Land may not be acquired or held or disposed of by way of lease under this section except where the land is or is to be used—

(a)primarily for residential purposes, or

(b)for purposes incidental to the use of adjoining land held or to be held by the society which is or is to be used primarily for residential purposes.

(3)A building society may develop or participate in developing for use for residential purposes or purposes connected with the residential use of land any land it holds under this section.

(4)If land acquired under this section ceases to be used for the purposes authorised by subsection (2) above the society shall sell its estate or interest in the land as soon as it is conveniently practicable without undue loss to the society.

(5)Land held under this section constitutes a class 3 asset for the purposes of the requirements of this Part for the structure of commercial assets and accordingly the aggregate value of all land so held counts in accordance with section 20 towards the limits applicable to class 3 assets under that section.

(6)Premises held under section 6, by virtue of subsection (5) of that section, shall, in prescribed circumstances, be treated in their entirety (and regardless of their use) as land held under this section for the purposes of the requirements of this Part for the structure of commercial assets and subsection (5) above applies accordingly.

(7)The Commission, with the consent of the Treasury, may by order made by statutory instrument make such provision for the purposes of subsection (6) above as it thinks fit and in that subsection “prescribed” means prescribed in an order under this subsection.

(8)An instrument containingan order under subsection (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(9)Except as provided in subsection (10) below, the powers conferred by this section are not available to a building society which does not for the time being have a qualifying asset holding, but the cessation of their availability does not require the disposal of any property or rights.

(10)A building society which does not for the time being have a qualifying asset holding may acquire, hold and dispose of land which is or is to be used for residential purposes if the purpose of the acquisition and holding of the land is to enable the society to make advances on the security of equitable interests in the land in the circumstances authorised by an order under section 10(6).

(11)The powers conferred by this section on a building society, if available to it, must in order to be exercisable, be adopted by the society.]

Textual Amendments

F72Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Modifications etc. (not altering text)

C24S. 17 extended by S.I. 1987/1942, art. 3

[F7318 Power to invest in subsidiaries and other associated bodies.U.K.

(1)Subject to the following provisions of this section, a building society may—

(a)acquire and hold shares or corresponding membership rights in bodies corporate and form or take part in forming bodies corporate, and

(b)provide bodies corporate in which it holds shares or such rights or to which it is, for the purpose of any power under this section, linked by resolution with any of the following supporting services—

(i)loans of money, with or without security and whether or not at interest,

(ii)grants of money, whether or not repayable,

(iii)guarantees of the discharge of their liabilities, and

(iv)the use of services or property, whether or not for payment;

and in this section “invest” means the exercise of any of the powers conferred by paragraph (a) and “support” means the exercise of any of the powers conferred by paragraph (b) above.

(2)A building society may invest in or support the following bodies corporate (referred to as “qualifying bodies”) but no others, that is to say—

(a)companies or industrial and provident societies;

(b)bodies formed in another member State for the purpose of carrying on in another member State businesses which consist wholly or mainly in lending money on the security of land and do not (where that is not the whole business) include lending on land in the United Kingdom (referred to as “corresponding European bodies”), and

(c)bodies corporate (whether or not falling within paragraph (a) or (b) above) designated as suitable for investment and support or for support for the purposes of this section by an order (referred to as “a designation order”) made by the Commission with the consent of the Treasury.

(3)A designation order may—

(a)designate a particular body or designate descriptions of bodies corporate,

(b)make different provision for different descriptions of building society,

(c)determine, or provide for the determination under the order of, the extent to which, the purposes for which, and the conditions subject to which, investment or support is permitted, and

(d)make such transitional and consequential provision as the Commission considers necessary or expedient.

(4)Subject to subsection (5) below, a building society shall not invest in or support a qualifying body so as to enable that body on its own account, in the United Kingdom, to—

(a)lend money to members of the public on the security of land by loans corresponding to advances secured on land,

(b)accept deposits of money otherwise than in such circumstances that their acceptance would not constitute its business a deposit-taking business or in the course of or for the purposes of providing a service for the time being specified in Part I of Schedule 8 to this Act;

but, subject to that, it may invest in or support a qualifying body so as to enable that body to carry on any activity which it is within the powers of the society to carry on, but, subject to subsection (5) below, no others.

(5)In the case of a qualifying body designated, or included in a description of bodies designated, by a designation order a building society may also invest in or support it for such purposes as are permitted by or under the designation order.

(6)Subject to subsection (7) and (8) below, a building society shall not invest in or support a qualifying body whose objects enable it—

(a)to carry on activities which are outside the powers of the society,

(b)to invest in other bodies corporate, or

(c)to support other bodies corporate;

but this does not imply that it is unlawful for the society to complete the performance of any contractual obligations lawfully incurred in providing a supporting service.

(7)Subsection (6) above shall not operate so as to restrict a building society’s powers under this section in relation to a corresponding European body.

(8)Subsection (6) above shall not prevent a building society from investing in or supporting a qualifying body—

(a)if that body is, in relation to the society, a designated body and the investment or support is made in accordance with the designation order,

(b)if, not being a body whose objects enable it to carry on activities outside the powers of the society, the investment or support is made or given with the consent of the Commission and subject to any conditions specified in the instrument giving the consent, or

(c)for a period of three months, pending the alteration of the objects of that body.

and that subsection shall not prevent a building society from investing in a qualifying body if the shares or corresponding membership rights in that body would, by virtue of an order under section 19, constitute class 3 assets in the hands of the society.]

(9)For the purposes of any power conferred by this section a body corporate is “linked by resolution” to a building society if the board of directors of the society has passed a resolution making that power exercisable in relation to that body and the resolution is in force.

(10)No power to invest in or support a corresponding European body is available to a building society which does not for the time being have a qualifying asset holding, but the cessation of its availability by virtue of this subsection does not require the disposal of any property or rights.

(11)The powers conferred by this section on a building society, if available to it, must, in order to be exercisable, be adopted by the society and must be adopted in their entirety without any restriction except a restriction with reference to the description of body corporate in relation to which the powers to invest in or support are to be exercisable.

(12)A building society whose board of directors has passed a resolution in pursuance of subsection (9) above shall send three copies of a record of the resolution signed by the secretary of the society to the central office and paragraph 4(3), (4) and (5) of Schedule 2 to this Act shall apply as it applies to a record of the alteration of a building society’s powers.

(13)Where the board of directors of a building society passes a resolution rescinding a resolution passed in pursuance of subsection (9) above the society shall send three copies of a record of the rescinding resolution signed by the secretary of the society to the central office and paragraph 4(3), (4) and (5) of Schedule 2 to this Act shall apply as it applies to a record of the alteration of a building society’s powers, but subject to subsection (14) below.

(14)No rescinding resolution shall be registered without the consent of the Commission.

(15)Where, by virtue of this section, property is held by a building society the property shall constitute class 3 assets for the purposes of the requirements of this Part for the structure of commercial assets and"accordingly the aggregate value of the property shall count in accordance with section 20 towards the limits applicable to class 3 assets under that section.

(16)The power to make an order under subsection (2)(c) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(17)In this section—

  • company” means a company within the meaning of the M14Companies Act 1985 or the M15Companies (Northern Ireland) Order 1986;

  • corresponding membership rights”, in relation to a body corporate, means such rights (other than rights arising from the holding of shares) as are attributable to membership of the body;

  • deposit” and “deposit-taking business” have the same meaning as in [F74the Banking Act 1987];

  • industrial and provident society” means a society registered under the M16Industrial and Provident Societies Act 1965 or, in Northern Ireland, the M17Industrial and Provident Societies Act (Northern Ireland) 1969;

  • property” includes rights of any description;

and in this Act “associated body”, in relation to a building society, means a body as respects which any of the following conditions is satisfied, that is to say—

(i)the body is one in which the society holds shares or corresponding membership rights, or

(ii)the body is one to which the society is linked by resolution, or

(iii)the body is one in which, by virtue of subsection (8)(b) above, shares or corresponding membership rights are held by a body which falls within (i) or (ii) above;

and “associated” shall be construed accordingly.

Textual Amendments

F73Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Modifications etc. (not altering text)

C26S. 18 modified (1.7.1992) by S.I. 1992/1547, arts. 5, 6, Sch. 2

Marginal Citations

[F7519 Power for Treasury to add powers to hold other descriptions of class 3 assets.U.K.

(1)The Treasury may, with a view to extending or altering, or extending to other descriptions of building societies, the forms of property which are to constitute class 3 assets in the hands of building societies or building societies of particular descriptions, by order—

(a)specify forms of property which a building society is to have power to acquire, hold and dispose of as assets of that class, subject to any specified conditions or restrictions;

(b)without prejudice to paragraph (a) above, specify descriptions of bodies corporate shares or other interests or rights in which a building society is to have power to acquire, hold and dispose of as assets of that class, subject to any specified conditions or restrictions;

(c)make any amendments of or repeals in this Act which are consequential on the exercise of its powers under paragraph (a) or (b) above;

(d)make such incidental, supplemental or transitional provision as it considers necessary or expedient.

(2)The powers conferred by subsection (1) above may be exercised so as to apply in relation to property situated or bodies incorporated within the United Kingdom or any other member State or other country or territory and so as to be exercisable for purposes other than the purposes of building societies under the powers conferred on them for the time being by or under this Act.

(3)Any powers conferred on building societies under this section may be conferred on building societies of a specified description or all building societies other than those of a specified description.

(4)Any power conferred on a building society under this section, if available to it, must, in order to be exercisable, be adopted by the society.

(5)Where, by virtue of an order under subsection (1)(a) or (b) above, property is held by a building society the property shall constitute class 3 assets for the purposes of the requirements of this Part for the structure of commercial assets and accordingly the aggregate value of the property, as determined in accordance with the order, shall count in accordance with section 20 towards the limits applicable to class 3 assets under that section.

(6)Subsection (5) above is subject to any provision contained in the order.

(7)The power to make an order under subsection (1) above is exercisable by statutory instrument but no such order shall be made unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(8)In this section—

  • property” includes rights of any description; and

  • specified” means specified in an order under subsection (1) above.]

Textual Amendments

F75Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Commercial asset structure requirementsU.K.

[F7620 Commercial asset structure requirements for building societies.U.K.

(1)The requirements for the structure of commercial assets applicable to building societies are the following.

(2)The class 2 assets or, if it has class 3 assets, the aggregate of the class 2 and class 3 assets held by a building society at the end of a financial year shall not exceed whichever is the greater of—

(a)10 per cent. of the total commercial assets held by the society at that time, or

(b)an amount corresponding to that percentage of the total commercial assets held by the society at the end of the preceding financial year.

(3)The class 3 assets (if any) held by a building society at the end of a financial year shall not exceed whichever is the greater of—

(a)5 per cent. of the total commercial assets held by the society at that time, or

(b)an amount corresponding to that percentage of the total commercial assets held by the society at the end of the preceding financial year.

(4)The Treasury may by order made by statutory instrument direct that subsection (2) or (3) above shall have effect during the currency of the order as if such percentage as is specified in the order were substituted for the percentage specified in that subsection, not being a percentage greater than 25 per cent. in the case of subsection (2) and 15 per cent. in the case of subsection (3) above.

(5)An order under subsection (4) above may—

(a)divide class 3 assets into sub-classes for the purposes of the order by reference to the provision of or made under this Part from which they arise;

(b)subject to subsection (6) below, prescribe different limits for different sub-classes; and

(c)make such transitional provision as appears to the Treasury to be necessary or expedient;

and any reference in this Act to a limit for a class of commercial assets shall, if a limit is in force under subsection (4) above for any sub-class of class 3 assets, be construed as including a reference to the limit for that sub-class.

(6)No order under subsection (4) above shall prescribe as a limit for a sub-class of class 3 assets a percentage of total commercial assets less than the percentage in force immediately before the making of the order for that sub-class or, if the subclass is created by the order, for class 3 assets generally

(7)An order under subsection (4) above shall not be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.

(8)The amount or value of the assets of any class of a building society for the purposes of this section is the amount or value as shown in the latest balance sheet or such other amount or value as the Commission determines to be the correct or, as the case requires, appropriate amount or value; and where the Commission determines an amount or value under this subsection the appropriate alterations shall be noted against the annual accounts of the society kept in the public file of the society.

(9)In determining for the purposes of this section the asset holding of a building society with which another body corporate is associated there shall, subject to subsection (12) below, be attributed to the society, in accordance with aggregation rules made by the Commission with the consent of the Treasury under this subsection, the whole or part of the assets of whatever description of the associated body, as provided in the rules and subject to any exceptions provided in the rules.

(10)The power to make aggregation rules under subsection (9) above includes power to make—

(a)different rules for different circumstances,

(b)provision for assets of societies to be disregarded,

(c)provision for assets to be attributed to any class of assets of societies, and

(d)such supplementary, transitional and saving provisions as appear to the Commission to be necessary or expedient.

(11)The power to make aggregation rules under subsection (9) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(12)The Commission may, on the application of a building society, approve rules to be applied for the purposes of this section for the attribution to the society of assets of bodies associated with the society; and so long as the rules continue to be approved by the Commission they, and not the aggregation rules in force under subsection (9) above, shall apply for the attribution of assets for the purposes of this section.

(13)If the commercial assets of any class of a building society exceed the limits in force under this section the powers conferred on the Commission by section 36 shall become exercisable in relation to the society, but exceeding the limit shall not affect the validity of transactions effected in excess of it nor require the disposal of any assets.]

Textual Amendments

F76Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Modifications etc. (not altering text)

C28S. 20 modified (temp.) by S.I. 1986/2168, art. 8(3)

C29S. 20 modified by S.I. 1986/2168, art. 4(2)(a)(i)(3)

C30S. 20 amended (temp.) by Building Societies (Limits on Commercial Assets) Order 1988, S.I. 1988/1142, art. 2

Liquid assetsU.K.

[F7721 Liquid assets.U.K.

(1)Subject to the following provisions of this section, a building society shall secure that, of its total assets, it keeps such a proportion of them having such a composition as will at all times enable the society to meet its liabilities as they arise.

(2)A building society may keep assets of an authorised character beyond those required for the purpose of complying with subsection (1) above.

(3)Subject to subsections (5) and (6) below, the assets held by a building society under subsection (1) or (2) above—

(a)shall not exceed in the aggregate a proportion of its total assets greater than 33 per cent., and

(b)shall be composed of assets of an authorised character and no others;

but, subject to that, a building society, in deciding on the composition and proportion appropriate for the purpose of complying with subsection (1) above, shall have regard to the range and scale of its business and the composition and character of its assets and liabilities.

(4)Subsection (3) above, in its application to a building society with which other bodies corporate are associated, is to be read as requiring the society to have regard to the range and scale of the business, and the composition and character of the assets and liabilities, of the society and the associated bodies.

(5)The Commission may, by order made with the consent of the Treasury, direct that this section shall have effect during the currency of the order as if such percentage as if specified in the order were substituted for the percentage specified in subsection (3) above; but any order under this subsection shall expire (unless previously revoked) at the end of the period of twelve months beginning with the day on which the order came into operation.

(6)The Commission may, at any time, by notice to a building society, direct that the limit in force under this section shall not, subject to any conditions specified in the notice, apply to the society during such period as the Commission specifies in the notice.

(7)Regulations to be known as liquid asset regulations shall be made by the Commission, with the consent of the Treasury, for the purposes of this section and such regulations—

(a)shall prescribe descriptions of assets as assets of a character which societies may, in any prescribed circumstances and subject to any prescribed conditions, hold under this section for the purpose of meeting their liabilities as they arise,

(b)may make different provision for different descriptions of building societies, and

(c)may make such supplementary or incidental provision and such transitional provision as appears to the Commission to be necessary or expedient.

(8)The power to make an order or regulations under subsection (5) or (7) above is exercisable by statutory instrument which shall be subject to annulmentin pursuance of a resolution of either House of Parliament.

(9)If the assets of a building society which are kept in the form directed by subsection (1) above exceed at any time the percentage in force under this section at that time the powers conferred on the Commission by section 36 shall become exercisable in relation to the society, but exceeding the limit shall not affect the validity of transactions effected in excess of it.

(10)In this section—

  • authorised”, in relation to the character of assets, means authorised by regulations under subsection (7) above for the purpose specified in paragraph (a) of that subsection;

  • business” includes business the society proposes to carry on; and

  • prescribed” means prescribed in regulations under subsection (7) above.]

Textual Amendments

F77Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Liabilities of associated bodiesU.K.

F7822. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.

Textual Amendments

F78S. 22 repealed (11.6.1996) by S.I. 1995/3233, art. 5(1) (with art. 5(2))

Other powersU.K.

[F7923 Power to hedge.U.K.

(1)Subject to subsections (3) and (4) below, a building society may effect contracts of a prescribed description for the purpose of reducing the risk of loss arising from changes in interest rates, currency rates or other factors of a prescribed description which affect its business.

(2)The Commission, with the consent of the Treasury, may by order—

(a)specify as contracts which building societies have power to effect under this section descriptions of contract whose purpose or one of whose purposes is the reduction of the risk to businesses of loss arising from the factors specified in subsection (1) above or other similar factors, and

(b)regulate, or provide for the regulation of, the terms on which, the persons or descriptions of persons with whom, and the circumstances in which, contracts of a description specified under paragraph (a) above, may be effected by building societies.

(3)Except as provided under subsection (4) below, the powers conferred by this section are not available to a building society which does not for the time being have a qualifying asset holding, but the cessation of their availability does not require the disposal of any property or rights.

(4)The Commission, with the consent of the Treasury, may by order provide that subsection (3) above shall not have effect, as regards prescribed powers, in relation to prescribed descriptions of building societies.

(5)The powers conferred by this section on a building society, if available to it, must, in order to be exercisable, be adopted by the society.

(6)The power to make an order under subsection (2) or (4) above—

(a)includes power to make such transitional provision as the Commission considers necessary or expedient, and

(b)is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(7)In this section “prescribed” means prescribed in an order under subsection (2) or (4) above, as the case may be.]

Textual Amendments

F79Pt. III (ss. 10-23) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)

Part IVU.K. Protection of Investors

Modifications etc. (not altering text)

C32Pt. IV (ss. 24-33) modified (1.7.1995) (temp. until 31.12.1999) by S.I. 1995/1442, reg. 54(2)

Investor Protection SchemeU.K.

24 The Building Societies Investor Protection Board.U.K.

(1)There shall be a body corporate to be known as the Building Societies Investor Protection Board (in this Part referred to as “the Board”) which—

(a)shall hold, manage and apply in accordance with the protective scheme provisions of this Part a fund to be known as the Building Societies Investor Protection Fund (referred to in those provisions as “the Fund”); and

[F80(b)shall, if a participating institution becomes insolvent, levy contributions to the Fund from other participating institutions in accordance with section 26; and.]

(c)shall have such other functions as are conferred on the Board by the protective scheme provisions of this Part.

(2)Schedule 5 to this Act shall have effect with respect to the constitution of the Board and the procedural and other matters there mentioned.

(3)In this Act “the protective scheme provisions” means [F81sections 25 to 29A].

[F82(4)In this section and the protective scheme provisions—

  • “the 1992 Regulations” means the Banking Coordination (Second Council Directive) Regulations 1992 M18;

  • “the 1995 Regulations” means the Credit Institutions (Protection of Depositors) Regulations 1995;

  • [F83administrator”, in relation to a participating institution, means an administrator of the institution under Part II of the M19Insolvency Act 1986 or Part III of the M20Insolvency (Northern Ireland) Order 1989;]]

  • “ecu” means—

    (a)

    the European currency unit as defined in Article 1 of Council Regulation No. 3320/94/EC M21; or

    (b)

    except in section 27(5A), any other unit of account which is defined by reference to the European currency unit as so defined;

  • “EEA currency” means the currency of an EEA State or ecus;

  • “EEA State” means a State which is a Contracting Party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 M22 as adjusted by the Protocol signed at Brussels on 17th March 1993 M23;

  • “European authorised institution” has the same meaning as in the 1992 Regulations;

  • “home State” and “home State scheme” have the same meaning as in the 1995 Regulations;

  • “Irish building society” means an institution which is incorporated in or formed under the laws of the Republic of Ireland and whose characteristics correspond as nearly as may be to those of a building society;

  • “participating EEA institution” means—

    (a)

    a European authorised institution which, in accordance with Chapter I of Part II of the 1995 Regulations, is participating in the scheme established by the protective scheme provisions; or

    (b)

    an institution which was formerly such an institution and continues to have a liability in respect of any investment for which it had a liability when it was such an institution;

  • “participating institution” means a building society or participating EEA institution.

[F84(5)The protective scheme provisions shall apply as if Gibraltar were an EEA State other than the United Kingdom.]

Textual Amendments

F80S. 24(1)(b) substituted (1.7.1995) by S.I. 1995/1442, reg. 36(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

F81Words in s. 24(3) substituted (1.7.1995) by S.I. 1995/1442, reg. 36(2) (with transitional and transitory provisions in regs. 53(2), 54(2))

F82S. 24(4) inserted (1.7.1995) by S.I. 1995/1442, reg. 36(3) (with transitional and transitory provisions in regs. 53(2), 54(2))

F83Definition in s. 24(4) inserted (1.12.1997) by 1997 c. 32, s. 43, Sch. 7 para. 4; S.I. 1997/2668, art. 2, Sch. Pt. I(j)(l)(ii)

F84S. 24(5) inserted (20.8.1999) by S.I. 1999/2094, reg. 6

Modifications etc. (not altering text)

C33Ss. 24-26: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

Marginal Citations

M21O.J. L35, 31.12.94, page 1.

M22Cm 2073.

M23Cm 2183.

25 The Investor Protection Fund.U.K.

(1)The Fund shall consist of—

(a)contributions levied from [F85participating institutions] under section 26;

(b)moneys borrowed by the Board under section 26(14);

(c)income credited to the Fund in accordance with subsection (3) below;

(d)payments made to the Board under subsection (6) below; and

(e)money credited to the Fund in accordance with section 29.

(2)The moneys constituting the Fund from time to time shall be placed by the Board in an account with the Bank of England.

(3)So far as possible, the Bank of England shall invest moneys placed with it under subsection (2) above in Treasury bills; and any income from moneys so invested shall be credited to the Fund.

[F86(3A)In subsection (3) above, the reference to Treasury bills includes a reference to bills and other short-term instruments issued by the government of another EEA State and appearing to the Bank of England to correspond as nearly as may be to Treasury bills:]

(4)The administrative expenses of the Board shall be defrayed out of the Fund.

(5)There shall be chargeable to the Fund—

(a)payments to meet adminstrative expenses of the Board in accordance with subsection (4) above;

(b)moneys required for the repayment of the Board’s borrowings, and interest thereon, under section 26(14); and

(c)payments to investors under section 27 and any expenses incurred in connection with the making of such payments;

(d)payments to contributory societies under section 29(7);

and, in the protective scheme provisions of this Part—

  • [F87authorised institution” means an institution authorised under the Banking Act 1987]

  • “the expenses attributable to the insolvency”, with reference to a [F88participating institution] insolvency, means all the sums chargeable to the Fund under [F89paragraphs (a) to (c)] above in respect of that insolvency except that, in the case of payments to meet administrative expenses of the Board, it means so much only of those expenses as the Board determines shall be attributed to the insolvency; and

  • insolvency payments to investors” means the payments under section 27 referred to in paragraph (c) above, and “insolvency payment” has a corresponding meaning; and

  • F90. . .

(6)The Commission shall, at the request of the Board, make payments to it towards the administrative expenses of the Board.

(7)In so far as the Board authorises [F91the Bank of England or]any [F92authorised institution] or building society to receive on its behalf any contributions levied by the Board and to make on its behalf any of the insolvency payments to investors out of the sums so received, the sums so received need not be paid into the Fund and payments need not be made out of the Fund but shall be treated as if they were respectively comprised in and charged on the Fund and shall be accounted for accordingly

Textual Amendments

F85Words in s. 25(1)(a) substituted (1.7.1995) by S.I. 1995/1442, reg. 37(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

F86S. 25(3A) inserted (1.7.1995) by S.I. 1995/1442, reg. 37(2) (with transitional and transitory provisions in regs. 53(2), 54(2))

F88Words in s. 25(5) substituted (1.7.1995) by S.I. 1995/1442, reg. 37(3) (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C34Ss. 24-26: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

[F9325A Meaning of insolvency etc.U.K.

(1)For the purpose of the protective scheme provisions of this Part, a building society becomes insolvent—

(a)on the making by the Commission of a determination that, for reasons which directly relate to the society’s financial circumstances, the society—

(i)is unable to repay investments which are due and payable; and

(ii)has no current prospect of being able to do so; or

(b)on the making by a court in any part of the United Kingdom, or in another EEA State, of a judicial ruling which—

(i)directly relates to the society’s financial circumstances; and

(ii)has the effect of suspending the ability of investors to make claims against the society,

but only if investments made with the society have become due and payable and have not been repaid; and the occurrence of any of those events in those circumstances constitutes a “participating institution insolvency” for the purposes of those provisions.

(2)For the purposes of the protective scheme provisions of this Part, a participating EEA institution becomes insolvent—

(a)on the making by the supervisory authority in the institution’s home State of a declaration that investments held by the institution are no longer available; or

(b)on the making by a court in any part of the United Kingdom, or in an EEA State other than the institution’s home State, of a judicial ruling which—

(i)directly relates to the institution’s financial circumstances; and

(ii)has the effect of suspending the ability of investors to make claims against the institution,

but only if, in a case falling within paragraph (b) above, investments made with the [F94institution] have become due and payable and have not been repaid; and the occurrence of any of those events, in those circumstances in a case falling within that paragraph, constitutes a “participating institution insolvency” for the purposes of those provisions.

(3)For the purposes of the protective scheme provisions of this Part—

(a)a participating institution which has become insolvent by virtue of such a determination or declaration as is mentioned in subsection (1)(a) or (2)(a) above ceases to be insolvent on any withdrawal of the determination or declaration; and

(b)a participating institution which has become insolvent by virtue of such a judicial ruling as is mentioned in subsection (1)(b) or (2)(b) above ceases to be insolvent on any reversal of the ruling (whether on appeal or otherwise).

(4)In relation to a building society, it shall be the duty of the Commission—

(a)to make such a determination as is mentioned in subsection (1)(a) above within 21 days of its being satisfied as there mentioned; and

(b)to withdraw such a determination within 21 days of its ceasing to be so satisfied.

(5)In this section “investment”—

(a)in relation to a building society or Irish building society, means a deposit with or a share in the society;

(b)in relation to any other participating institution, means a deposit with the institution.]

Textual Amendments

F93S. 25A inserted (1.7.1995) by S.I. 1995/1442, reg. 38 (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C36S. 25A(4)(a) modified (1.7.1995) by S.I. 1995/1442, reg. 53(4) (with transitory provisions in reg. 54(2))

26 Power to levy contributions and to borrow money in event of insolvency.U.K.

F95(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F96(2)If a participating institution becomes insolvent the Board shall levy contributions to the Fund for the purpose of making insolvency payments to investors at such level of investor protection as is provided for by section 27 and meeting the other expenses attributable to the insolvency.

(3)All institutions (other than the insolvent institution) which on the date of the insolvency are—

(a)authorised building societies; or

(b)European authorised institutions which, in accordance with Chapter I of Part II of the 1995 Regulations, are participating in the scheme established by the protective scheme provisions,

are liable to contribute to the Fund and are in the protective scheme provisions of this Part referred to as “contributory institutions”.

(4)If a participating institution becomes insolvent—

(a)the Board shall, subject to subsection (10) below, levy a contribution from each of the contributory institutions; and

(b)the amount of the contribution due from an institution shall be determined by applying to its share and deposit base a percentage determined by the Board for the purpose of the contributions levied to meet the expenses attributable to the insolvency.

(5)In determining the percentage to be applied under subsection (4) above to the share and deposit bases of contributory institutions, the Board shall have regard to the factors specified in subsection (6) below.

(6)Those factors are—

(a)the amount available to meet the expenses attributable to the insolvency from the contributions leviable from contributory institutions; and

(b)the amount of the expenses attributable to the insolvency at the level of investor protection provided for by section 27.]

(7)If it appears to the Board, as respects a [F97participating institution] insolvency, that the contributions it has levied will be insufficient to make the insolvency payments to investors at the level of investor protection [F98provided for by] section 27, the Board may levy further contributions under subsection (2) above from the [F99contributory institutions].

(8)Contributions to the Fund shall be levied on a [F100contributory institution] by the Board by service on [F101the institution] of a notice specifying the amount (or further amount) due, which shall be paid by [F101the institution] not later than twenty-one days after the date on which the notice is served.

[F102(8A)Where—

(a)a notice under subsection (8) above is served on a contributory institution; and

(b)the amount specified in the notice remains unpaid after the period of twenty-one days mentioned in that subsection,

the Board shall as soon as practicable give written notice of that fact to the Commission.

(9)In relation to any contribution, the share and deposit base of an authorised building society is such amount as represents the aggregate of so much of the society’s liabilities as is referable to sums desposited with the society, or to shares in the society, as shown in the latest balance sheet sent to the Commission in accordance with section 81.

(9A)In relation to any contribution, the share and deposit base of a participating EEA institution is the difference between—

(a)such amount as represents the aggregate of so much of the institution’s liabilities as is referable to sums deposited with the institution, or (in the case of an Irish building society) to shares in the institution, as shown in the latest balance sheet sent to the supervisory authority in its home State; and

(b)the amount mentioned in subsection (9B) below.

(9B)The amount referred to in subsection (9A) above is the amount given by the formula—

where—

PA = so much of the first-mentioned amount as is attributable to desposits which are protected by the institution’s home State scheme;

HS = the level of protection (expressed in ecus) afforded by that scheme at the time as at which the balance sheet was drawn up, or the level of protection mentioned below, whichever is the less;

UK = the level of protection (so expressed) afforded by this Part of this Act at that time.]

(10)No [F103contributory institution] shall be required to pay a contribution if, or to the extent that, the amount of that contribution, together with previous contributions levied under this section for the purposes of any [F104participating institution] insolvency, after allowing for any repayments made to it under section 29, amounts to more than 0.3 per cent. of the [F105institution’s] share and deposit base as ascertained for the purposes of the contribution in question.

(11)Nothing in subsection (10) above—

(a)shall entitle [F106an institution] to repayment of any contribution previously made, or

(b)shall prevent the Board from proceeding to levy contributions from other [F107contributory institutions] in whose case the limit in that subsection has not been reached.

(12)The Treasury may, after consultation with the Board, by order made by statutory instrument, amend subsection (10) above so as to substitute for the percentage for the time being specified in that subsection such other percentage as may be specified in the order.

(13)No order shall be made under subsection (12) above unless a draft of it has been laid before and approved by a resolution of each House of Parliament.

(14)If, as respects a [F108participating institution] insolvency, it appears to the Board desirable to do so for the purpose of facilitating the making of insolvency payments to investors, the Board may borrow temporarily for that purpose subject, however, to the limit imposed by subsection (15) below.

(15)The aggregate of the amounts outstanding in respect of the principal of and interest due on sums borrowed under subsection (14) above shall not at any time exceed the aggregate of the sums leviable at that time from [F109contributory institutions] for the purposes of any insolvency.

(16)Any sums borrowed by the Board under subsection (14) above in respect of a [F110participating institution] insolvency shall be repaid as soon as practicable after the contributions levied in respect of the insolvency have been paid by the [F111contributory institutions].

(17)In this section “the level of investor protection”, in relation to insolvency payments to investors, means the proportion applicable for the purpose of calculating the amount of those payments under section 27.

Textual Amendments

F95S. 26(1) omitted (1.7.1995) by virtue of S.I. 1995/1442, reg. 39(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

F96S. 26(2)-(6) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(2) (with transitional and transitory provisions in regs. 53(2), 54(2))

F97Words in s. 26(7) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(3)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F98Words in s. 26(7) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(3)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F99Words in s. 26(7) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(3)(c) (with transitional and transitory provisions in regs. 53(2), 54(2))

F100Words in s. 26(8) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(4)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F101Words in s. 26(8) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(4)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F102S. 26(8A)-(9B) substituted for s. 26(9) (1.7.1995) by S.I. 1995/1442, reg. 39(5) (with transitional and transitory provisions in regs. 53(2), 54(2))

F103Words in s. 26(10) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(6)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F104Words in s. 26(10) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(6)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F105Words in s. 26(10) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(6)(c) (with transitional and transitory provisions in regs. 53(2), 54(2))

F106Words in s. 26(11) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(7)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F107Words in s. 26(11) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(7)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F108Words in s. 26(14) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(8) (with transitional and transitory provisions in regs. 53(2), 54(2))

F109Words in s. 26(15) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(9) (with transitional and transitory provisions in regs. 53(2), 54(2))

F110Words in s. 26(16) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(10)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F111Words in s. 26(16) substituted (1.7.1995) by S.I. 1995/1442, reg. 39(10)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C37Ss. 24-26: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

27 Payments to investors.U.K.

[F112(1)Subject to the following provisions of this section, if at any time a participating institution becomes insolvent, the Board—

(a)shall as soon as practicable pay out of the Fund to persons who have at that time protected investments in the institution which are due and payable amounts equal ot 90 per cent of their protected investments; and

(b)shall in any event secure that, before the end of the relevant period, it is in a position to make those payments as soon as they fall to be made.

(2)If at any time a participating institution ceases to be insolvent, subsection (1) above shall cease to apply in relation to that institution.

(2A)In subsection (1) above “the relevant period” means—

(a)the period of three months beginning with the time when the institution becomes insolvent; or

(b)that period and such additional period or periods, being not more than three and of not more than three months each, as the Commission may in exceptional circumstances allow.]

(3)A person claiming to be entitled to a payment under this section in respect of his protected investment in an [F113insolvent participating institution] shall make his claim in such form, with such evidence proving it, and within such period, as the Board directs and either to the Board or to [F114such institution (whether the Bank of England, an authorised institution or a building society)] authorised by the Board to make the payments on its behalf, as the Board directs.

[F115(3A)The amount of any payment which falls to be made under subsection (1) above in respect of a protected investment made with an office of a building society in another EEA State shall not exceed such amount as the Board may determine is or would be payable, in respect of an equivalent investment or deposit made with an institution authorised in that State, under any corresponding scheme for the protection of investors or depositors which is in force in that State.

(3B)Where the Board is satisfied that an investor has received or is entitled to receive, under any home State scheme, a payment in respect of a protected investment made with a United Kingdom office of a participating EEA institution, the Board shall deduct an amount equal to that payment from the payment that would otherwise be made to the investor under subsection (1) above.]

[F116(4)The Board may decline to make any payment under subsection (1) to a person who, in the opinion of the Board–

(a)had any responsibility for, or may have profited directly or indirectly from, the circumstances giving rise to the institution’s financial difficulties; or

(b)is entitled to receive a payment in respect of his protected investment under a scheme established under section 54 of the Financial Services Act 1986 or set up pursuant to the conditions and arrangements referred to in section 43(2) of that Act,

and where any payment as mentioned in paragraph (b) above has been received by a person, the Board shall decline to make a payment under subsection (1) to that person.]

[F117(4A)There shall be deducted from any payment to be made by the Board under subsection (1) above in respect of a protected investment any payment already made in respect of that investment by a liquidator [F118or administrator]]of the institution; and in this subsection, in relation to an institution formed under the law of a country or territory outside the United Kingdom, the reference to a liquidator [F118or administrator]includes a reference to a person whose functions appear to the Board to correspond as nearly as may be to those of a liquidator [F118or administrator].

(5)For the purposes of this section in its application in relation to a participating institution which has become insolvent—

(a)a person has at any time a protected investment in the institution if he has a deposit with the institution in an EEA currency or, in the case of a building society or Irish building society, a share in the society; and

(b)his protected investment is the total liability of the institution to him, limited to the maximum mentioned in subsection (5A) below, which is referable to sums deposited with the institution or, in the case of a building society or Irish building society, to shares in the society.

(5A)The maximum is £20,000 or the sterling equivalent of 22,222 ecus immediately before the institution became insolvent, whichever is the greater.

(5B)In calculating a person’s protected investment for the purposes of subsection (5) above, the amount to be taken into account as regards any desposit made in another EEA currency shall be its sterling equivalent immediately before the time when the institution became insolvent, or the time when the investment became due and payable, whichever is the later.

(5C)In its application to a participating EEA institutions, subsection (5) above shall have effect as if any reference to a deposit with, or sums deposited with, the institution were a reference to a deposit with or sums deposited with, a United Kingdom office of the institution.

(6)The Treasury, after consultation with the Board, may by order made by statutory instrument—

(a)amend [F119subsection (1)] above so as to substitute for the percentage for the time being specified in that subsection [F119such greater percentage] as may be specified in the order; and

[F120(b)amend subsection (5A) above so as to substitute for either sum for the time being specified in that subsection such greater sum as may be specified in the order.]

(7)No order shall be made under subsection (6) above unless a draft of it has been laid before, and approved by a resolution of, each House of Parliament.

[F121(8)In determining whether a person has a protected investment in a participating institution and the amount of it there shall be disregarded—

(a)any deposit or shares which are own funds within the meaning given by Article 2 of Directive 89/299/EEC M24;

(b)any deposit made or share acquired by a credit institution on its own behalf and for its own account;

(c)any deposit or share which the Board is satisfied was made or acquired in the course of a money-laundering transaction;

(d)any deposit by a person mentioned in item 1 or 2 of Annex I to Directive 94/19/EC M25 which was made otherwise than as trustee for a person not so mentioned;

(e)any deposit, security or liability which falls within item 10 or 12 of that Annex; and

(f)in the case of an institution which has ceased to be a European authorised institution which, in accordance with Chapter I of Part II of the 1995 Regulations, is participating in the scheme established by the protective scheme provisions, any deposit made with the institutions after it ceased to be a such an institution.

(8A)Paragraph (b) of subsection (8) above has effect subject to the provisions of Schedule 6 to this Act; and a transaction in connection with which an offence has been committed under—

(a)any enactment specified in a regulation 2(3) of the Money Laundering Regulations 1993 M26 ; or

(b)any enactment in force in another EEA State, or in a country or territoty outside the European Economic Area, which has effect for the purpose of prohibiting money laundering within the meaning of Article 1 of Directive 91/308/EEC M27,

is a money-laundering transaction for the purposes of paragraph (c) of that subsection at any time if, at that time, a person stands convicted of the offence or has been charged with the offence and has not been tried.

(9)In determining what is a protected investment of an investor, no account shall be taken of any liability unless—

(a)proof of the debt, or a claim for repayment of the investment, which gives rise to the liability has been lodged with a liquidator [F122or administrator]]of the institution; or

(b)the investor has provided the Board with all such written authorities, information and documents as, in the event of a liquidator [F122or administrator]being appointed, the Board will need for the purpose of lodging and pursuing, on the investor’s behalf, a proof of the debt, or a claim for the repayment of the investment, which gives rise to the liability.

(9A)In subsection (9) above, in relation to an institution incorporated in or formed under the law of an EEA State other than the United Kingdom—

(a)references to a liquidator [F123or administrator]include references to a person whose functions appear to the Board to correspond as nearly as may be to those of a liquidator [F123or administrator]; and

(b)references to the lodging, or the lodging and pursuing, of a proof of the debt, or a claim for the repayment of the deposit, which gives rise to the liability include references to the doing of an act or acts which appear to the Board to correspond as nearly as may be to the lodging. or the lodging and pursuing, of such a proof or claim,

(10)Unless the Board otherwise directs in any particular case or class of case, in determining the total liability of an insolvent [F124participating institution] to any person for the purposes of subsection (1) above, there shall be deducted the amount of any liability of that person to [F125the institution]

(a)in respect of which a right of set-off existed immediately before [F125the institution] became insolvent against any such investment of his as is referred to in that subsection, or

(b)in respect of which such a right would then have existed if the investment in question had been repayable on demand and the liability in question had fallen due.

(11)Payments under this section in respect of a protected investment in an insolvent [F126participating institution] may, if the Board thinks fit, be made by such instalments as it determines for the purposes of that insolvency.

(12)Schedule 6 to this Act, which contains provisions about investments held by trustees or jointly or on client’s account, shall have effect.

Textual Amendments

F112S. 27(1)-(2A) substituted for s. 27(1)(2) (1.7.1995) by S.I. 1995/1442, reg. 40(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

F113Words in s. 27(3) substituted (1.7.1995) by S.I. 1995/1442, reg. 40(2) (with transitional and transitory provisions in regs. 53(2), 54(2))

F115S. 27(3A)-(3B) inserted (1.7.1995) by S.I. 1995/1442, reg. 40(3) (with transitional and transitory provisions in regs. 53(2), 54(2))

F116S. 27(4) substituted (26.9.1998) by S.I. 1998/2169, art. 3

F117S. 27(4A)-(5C) substituted for s. 27(5) (1.7.1995) by S.I. 1995/1442, reg. 40(5) (with transitional and transitory provisions in regs. 53(2), 54(2))

F119Words in s. 27(6)(a) substituted (1.7.1995) by S.I. 1995/1442, reg. 40(6)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F120S. 27(6)(b) substituted (1.7.1995) by S.I. 1995/1442, reg. 40(6)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F121S. 27(8)-(9A) substituted for s. 27(8)(9) (1.7.1995) by S.I. 1995/1442, reg. 40(7) (with transitional and transitory provisions in regs. 53(2), 54(2))

F124Words in s. 27(10) substituted (1.7.1995) by S.I. 1995/1442, reg. 40(8)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F125Words in s. 27(10) substituted (1.7.1995) by S.I. 1995/1442, reg. 40(8)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F126Words in s. 27(11) substituted (1.7.1995) by S.I. 1995/1442, reg. 40(9) (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C38Ss. 27, 28: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(b)(ii); S.I. 1997/1427, art. 2(g)

Marginal Citations

M24O.J. L124, 5.5.89, page 16.

M25O.J. L135, 31.5.94, page 5.

M27O.J. L166, 28.6.91, page 77.

[F12727A Membership of insolvency committees etc.U.K.

(1)The following provisions of this section have effect notwithstanding that the Board may not yet have made or become liable to make a payment under section 27(1) in relation to a participating institution which has become insolvent.

(2)The Board shall at all times be entitled to receive any notice or other document required to be sent to a creditor of the institution whose debt has been proved.

(3)A duly authorised representative of the Board shall be entitled—

(a)to attend any meeting of creditors of the institution and to make representations as to any matter for decision at that meeting;

(b)to be a member of any committee established under section 301 of the Insolvency Act 1986;

(c)to be a commissioner under section 30 of the M28Bankruptcy (Scotland) Act 1985;

(d)to be a member of a committee established for the purposes of Part IV or V of the M29Insolvency Act 1986 under section 101 of that Act or under section 141 or 142 of that Act;

(e)to be a member of any committee established under Article 274 of the M30Insolvency (Northern Ireland) Order 1989; and

(f)to be a member of a committee established for the purposes of Part V or VI of the Insolvency (Northern Ireland) Order 1989 under Article 87 or under Article 120 of that Order.

(4)Where a representative of the Board exercises his right to be a member of such a committee as is mentioned in paragraph (b), (d), (e) or (f) of subsection (3) above, or to be a commissioner by virtue of paragraph (c) of that subsection—

(a)he may not be removed except with the consent of the Board; and

(b)his appointment under that subsection shall be disregarded for the purposes of any provision made by or under any enactment which specifies a minimum or maximum number of members of such a committee or commission.]

28 Liability of insolvent society in respect of payments by Board.U.K.

[F128(1)This section applies where—

(a)a participating institution becomes insolvent, and

(b)the Board, by reason of the insolvency, has made, or is under a liability to make, an insolvency payment to an investor in respect of his protected investment.]

(2)Where this section applies [F129in respect of an institution that is being wound up]

(a)the [F130institution] shall become liable to the Board, F131. . ., for an amount equal to the amount of the insolvency payment to the investor;

(b)the liability of [F132the institution] to the investor, whether referable to deposits or referable to shares of his (in this section referred to as “the liability to the investor”), shall be reduced by an amount equal to the insolvency payment made or to be made to him by the Board; and

(c)the respective duties of the liquidator of the [F133institution]

(i)to make payments to the Board on account of the liability imposed by paragraph (a) above and to the investor on account of the liability to the investor so far as that liability is referable to deposits of his (after taking account of paragraph (b) above), and

(ii)to make payments to the Board on account of the liability imposed by paragraph (a) above and to the investor on account of the liability to the investor so far as that liability is referable to shares of his (after taking account of paragraph (b) above),

shall be varied in accordance with subsection (4) and subsection (5) below;

and in those subsections “the liability to the Board” means the liability imposed by paragraph (a) above on [F132the institution].

[F134(2A)The liability imposed by subsection (2)(a) above shall have effect—

(a)where the liability of the institution to the investor is referable to deposits, as a liability in respect of deposits received immediately before the time when the institution began to be wound up;

(b)where that liability is referable to shares, as a liability in respect of shares issued immediately before that time.]

(3)Where the [F135institution’s] liability to the investor is referable to both shares and deposits, the amount equal to the insolvency payment to him shall, for the purposes of subsection (2) (b) above, be first applied in reduction of the liability referable to his shares then, if that amount exceeds that liability, in reduction of the liability referable to his deposits.

(4)The variation in the liquidator’s duty where the liability to the investor is referable to deposits of his is as follows—

(a)in the first instance the liquidator shall pay to the Board instead of to the investor any amounts which, apart from this section, would be payable on account of the liability to the investor referable to deposits of his except in so far as that liability relates to a secured deposit; and

(b)if at any time the total amount paid to the Board by virtue of paragraph (a) above and in respect of the liability to the Board equals the amount of the insolvency payment referable to deposits of the investor, the liquidator shall thereafter pay to the investor instead of to the Board any amount which, [F136apart from this paragraph], would be payable to the Board in respect of the liability to the Board.

(5)The variation in the liquidator’s duty where the liability to the investor is referable to shares of his is as follows—

(a)in the first instance the liquidator shall pay to the Board instead of to the investor any amounts which, apart from this section, would be payable on account of the liability to the investor referable to shares of his; and

(b)if at any time the total amount paid to the Board by virtue of paragraph (a) above and in respect of the liability to the Board equals the amount of the insolvency payment referable to shares of the investor, the liquidator shall thereafter pay to the investor instead of to the Board any amount which, [F136apart from this paragraph], would be payable to the Board in respect of the liability to the Board.

[F137(5A)Where this section applies in respect of an institution that is not being wound up—

(a)the institution shall, at the time when the insolvency payment falls to be made by the Board, become liable to the Board for an amount equal to that payment; and

(b)the liability of the institution to the investor shall be reduced by an amount equal to that payment.

(5B)Where a participating institution is wound up after it has become insolvent subsections (2) to (5) above shall not apply to any insolvency payment to the extent to which the Board has received a payment in respect of it by virtue of subsection (5A)(a) above.]

[F138(6)Where by virtue of paragraph 3 of Schedule 6 to this Act the insolvency payment is or is to be made by the Board to a person other than the person to whom the institution is liable in respect of the protected investment, any reference in the preceding provisions of this section to the liability to the investor shall be construed as a reference to the liability of the institution to the person to whom that payment would fall to be made by the Board apart from that paragraph.]

F139(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F139(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9)Rules may be made—

(a)for England and Wales and for Scotland, under section 411 of the M31Insolvency Act 1986, and

(b)for Northern Ireland, under [F140Article 359 of the Insolvency (Northern Ireland) Order 1989];

for the purpose of integrating the procedure provided for in this section [F141and section 29A(3) to (5)]into the general procedure on winding up.

Textual Amendments

F128S. 28(1) substituted (1.7.1995) by S.I. 1995/1442, reg. 41(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

F129Words in s. 28(2) inserted (1.7.1995) by S.I. 1995/1442, reg. 41(2)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F130Words in s. 28(2) substituted (1.7.1995) by S.I. 1995/1442, reg. 41(2)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F131Words in s. 28(2)(a) ceased to have effect (9.6.1997) and repealed (1.12.1997) by 1997 c. 32, ss. 33(1), 46(2), Sch. 9; S.I. 1997/1427, art. 2(h); S.I. 1997/2668, art. 2(1), Sch. Pt. I

F132Words in s. 28(2) substituted (1.7.1995) by S.I. 1995/1442, reg. 41(2)(c) (with transitional and transitory provisions in regs. 53(2), 54(2))

F133Words in s. 28(2) substituted (1.7.1995) by S.I. 1995/1442, reg. 41(2)(e) (with transitional and transitory provisions in regs. 53(2), 54(2))

F135Word in s. 28(3) substituted (1.7.1995) by S.I. 1995/1442, reg. 41(3) (with transitional and transitory provisions in regs. 53(2), 54(2))

F136Words in s. 28(4)(b)(5)(b) substituted (9.6.1997) by 1997 c. 32, s. 33(3); S.I. 1997/1427, art. 2(h)

F137S. 28(5A)(5B) inserted (1.7.1995) by S.I. 1995/1442, reg. 41(4) (with transitional and transitory provisions in regs. 53(2), 54(2))

F139S. 28(7)(8) omitted (1.7.1995) by virtue of S.I. 1995/1442, reg. 41(6) (with transitional and transitory provisions in regs. 53(2), 54(2))

F141Words in s. 28(9) inserted (1.7.1995) by S.I. 1995/1442, reg. 41(7) (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C39Ss. 27, 28: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(b)(ii); S.I. 1997/1427, art. 2(g)

Marginal Citations

29 Repayments in respect of contributions.U.K.

(1)Any moneys received by the Board under section 28 in respect of a [F142participating institution] insolvency shall not form part of the Fund but, for the remainder of the financial year of the Board in which they are received, shall be retained for the purposes of this section in its application in relation to that insolvency and so far as appears to the Board appropriate, shall be invested in Treasury bills; and any income arising from moneys so invested during the remainder of the year shall be credited to the Fund.

(2)The Board shall, in connection with each [F143participating institution] insolvency for the purposes of which it has levied contributions under section 26, prepare a scheme for the making, out of moneys received by the Board under section 28 in respect of that insolvency, of repayments to the [F144contributory institutions] in proportion to the contributions made by each [F145such institution] in respect of the insolvency.

(3)As soon as practicable after the end of the financial year of the Board in which any moneys are received by the Board in respect of a [F146participating institution] insolvency, the Board shall, subject to subsection (4) below, make out of those moneys the payments required by the scheme made under subsection (2) above in connection with that insolvency.

(4)Where payments are due under subsection (3) above to [F147participating institutions] from whom contributions are due under section 26 for the purposes of other [F148participating institution] insolvencies, the Board may appropriate out of the moneys retained by it under subsection (1) above amounts not exceeding the contributions due from [F149those institutions] and apply them as if they had been paid by [F149those institutions] as contributions for the purposes of the other [F148participating institution] insolvencies.

(5)If the Board makes appropriations under subsection (4) above, then, the amounts so appropriated shall be treated for all purposes as having been paid by the Board to those [F150institutions] in or towards discharge of its debts to them and paid by the [F150institutions] to the Board as contributions and corresponding amounts shall be credited to the Fund and debited to the account kept for the purposes of this section.

(6)If in any financial year of the Board the payments made under subsection (3) above (in that and any previous years) in pursuance of a scheme under subsection (2) above are more than sufficient to provide for repayment in full of all the contributions to which the scheme related, the balance remaining of the moneys received and retained by Board as mentioned in subsection (1) above shall be credited to the Fund.

(7)The Board, having regard to the factors specified in subsection (8) below, shall, as respects sums representing—

(a)any balance credited to the Fund under subsection (6) above and any interest thereon, or

(b)any balance of the contributions received in respect of the insolvency remaining after the making of insolvency payments to investors and the meeting of the other expenses attributable to the insolvency and any interest thereon,

either retain them in the Fund or pay so much of them to the [F151contributory institutions] in proportion to the contributions made by each such [F152institution] in respect of the insolvency, as the Board may think fit.

(8)Those factors are—

(a)the likely level of future administrative expenses of the Board, and

(b)the likelihood of other [F153participating institutions] becoming insolvent and, if they did, the amount of the expenses likely to be attributable to those insolvencies and the amounts likely to be available from [F154contributory institutions] to meet those expenses.

Textual Amendments

F142Words in s. 29(1) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

F143Words in s. 29(2) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(2)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F144Words in s. 29(2) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(2)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F145Words in s. 29(2) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(2)(c) (with transitional and transitory provisions in regs. 53(2), 54(2))

F146Words in s. 29(3) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(3) (with transitional and transitory provisions in regs. 53(2), 54(2))

F147Words in s. 29(4) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(4)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F148Words in s. 29(4) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(4)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F149Words in s. 29(4) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(4)(c) (with transitional and transitory provisions in regs. 53(2), 54(2))

F150Words in s. 29(5) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(5) (with transitional and transitory provisions in regs. 53(2), 54(2))

F151Words in s. 29(7) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(6)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F152Words in s. 29(7) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(6)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F153Words in s. 29(8) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(7)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F154Words in s. 29(8) substituted (1.7.1995) by S.I. 1995/1442, reg. 42(7)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C40Ss. 29-31: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

[F15529A Power to obtain information.U.K.

(1)If required to do so by a request in writing made by the Board, the Commission may by notice in writing served on a contributory institution require the institution, within such time and at such place as may be specified in the notice, to furnish the Board with such information and to produce to it such documents, or documents of such a description, as the Board may reasonably require for the purpose of determining the contributions of the institution under this Part of this Act.

(2)Subsections (6) to (10) of section 52 M32 shall have effect in relation to any requirement imposed under subsection (1) above on a building society as they have effect in relation to a requirement imposed under that section.

(3)The Board may by notice in writing served on an insolvent participating institution or, where a person has been appointed as liquidator [F156or administrator]]of such an institution, on that person, require the institution or person, at such time or times and at such place as may be speciified in the notice—

(a)to furnish the Board with such information; and

(b)to produce to the Board such books or papers specified in the notice,

as the Board may reasonably require to enable it to carry out its functions under the protective scheme provisions of this Part.

(4)Where, as a result of a participating institution being wound up, any books or papers have come into the possession of the office-holder mentioned in subsection (5) below, he shall permit any person duly authorised by the Board to inspect the books or papers for the purpose of establishing—

(a)the identity of those of the institution’s investors to whom the Board is liable to make an insolvency payment; and

(b)the amount of the protected investment held by each of those investors.

(5)The office-holder referred to in subsection (4) above is—

(a)in England and Wales, the Official Receiver;

(b)in Scotland, the liquidator; and

(c)in Northern Ireland, the Official Receiver for Northern Ireland.

Textual Amendments

F155S. 29A inserted (1.7.1995) by S.I. 1995/1442, reg. 43 (with transitional and transitory provisions in regs. 53(2), 54(2))

Modifications etc. (not altering text)

C41Ss. 29-31: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

Marginal Citations

30 Tax treatment of contributions and repayments.U.K.

In computing for the purposes of the Tax Acts the profits or gains arising from the trade carried on by a contributory building society—

(a)to the extent that it would not be deductible apart from this paragraph, any sum expended or treated under section 29 as expended by the society in paying a contribution to the Fund may be deducted as an expense; and

(b)any payment which is made or treated as made to the society by the Board under section 29(3) or (7) shall be treated as a trading receipt.

Modifications etc. (not altering text)

C42Ss. 29-31: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

Other provisionsU.K.

31 Voluntary schemes.U.K.

[F157(1)In this section “voluntary arrangements” means arrangements entered into by any two or more building societies for the purpose of making funds available to meet losses incurred by persons who have deposited money with, or who have shares in, an insolvent building society which is a party to the arrangements.

(2)A building society shall not enter into any voluntary arrangements until the arrangements have been approved by the Commission and authorised by a resolution passed, at a general meeting of the society or on a postal ballot, as a special resolution.

(3)The Commission shall not approve any voluntary arrangements unless it is satisfied that the arrangements comply with the Deposit Guarantee Schemes Directive (94/19/EC).]

(4)The maximum payment to any investor that may be provided for by voluntary arrangements is such sum as represents the total liability of the insolvent society to him (of any amount) which is referable to sums deposited with the society or to his shares in the society, after taking into account payments to him under section 27

(5)No payment under voluntary arrangements shall be made to any person—

(a)in respect of any investment which would be disregarded for the purposes of section 27(8), or

(b)where the liability of the insolvent society to him is reduced by any set-off for the purposes of section 27(10); or

(c)where that person is ineligible for any payment under the protective scheme provisions of this Part by virtue of a decision of the Board under section 27(4).

(6)Voluntary arrangements may include—

(a)arrangements to constitute, and for contributions to be made to, a fund vested in trustees appointed under the arrangements, being a standing fund or a fund established in the event of an insolvency (or a combination of each);

(b)arrangements for payments to be made on behalf of the trustees to investors by societies participating in the arrangements;

(c)arrangements to protect only specified classes of investor or specified classes of investment;

(d)arrangements providing for a level of protection more limited than the maximum allowed by subsection (4) above;

(e)arrangements with the Board or any institution making payments to investors on the Board’s behalf for the purpose of making payments under the protective scheme provisions of this Part and voluntary arrangements at the same time; or

(f)arrangements providing, in circumstances specified in them, for payments to be made by the trustees to the societies making contributions.

(7)Any payment by a society participating in arrangements which include arrangements falling within subsection (6)(b) above shall be treated for the purposes of this section as a contribution paid by the society to the trustees and as a payment by the trustees to the investors.

(8)Subject to subsection (9) below, subsections (2) to (6) of section 28 shall, if the voluntary arrangements so provide, apply to payments to investors made by the trustees as they apply to insolvency payments made by the Board.

(9)In relation to a building society insolvency in respect of which the Board and the trustees have each made payments to investors, the variation in the liquidator’s duty effected by subsections (2)(c), (4) and (5) of section 28 shall be modified as follows, that is to say—

(a)subsection (4) shall have effect as if it required the liquidator, before paying the investor and after paying the Board to the extent required by that subsection, to pay to the trustees instead of to the investor any amount which, apart from this paragraph, would be payable to the trustees on account of the liability to the trustees referable to deposits of the investor; and

(b)subsection (5) shall have effect with a corresponding modification in respect of any such amount referable to shares of the investor,

and, in this subsection, “the liability to the trustees", means the liability to the trustees which, by virtue of subsection (8) above, corresponds to the liability to the Board imposed by section 28(2)(a).

(10)In this section “insolvent” and “insolvency”, in relation to a building society, have the meanings given by [F158section 25A]; and “the trustees”, in relation to voluntary arrangements, means the trustees appointed under them.

Textual Amendments

F157S. 31(1)-(3) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 11; S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(iii)

F158Words in s. 31(10) substituted (18.7.1996) by S.I. 1996/1669, reg. 23, Sch. 5 para. 3

Modifications etc. (not altering text)

C43Ss. 29-31: power to repeal conferred (9.6.1997) by 1997 c. 32, s. 32(5)(a); S.I. 1997/1427, art. 2(g)

32 Special provisions as regards investors.U.K.

The Provisions of Schedule 7 to this Act relating to shareholders in and depositors with a building society shall have effect.

[F15933 Assistance by building societies to other building societies.U.K.

Where it appears to the Commission that a building society is in financial difficulties it may authorise a building society to lend money to that society, and a building society shall have power to do so accordingly.]

Textual Amendments

F159S. 33 repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(b), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pt. II(j)(y)(cc)(iii)

[F160Part VU.K. Powers to Provide Services]

Textual Amendments

F160Pt. V (ss. 34-35) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(c), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pt. II(j)(y)(cc)(iv)

[F16134 Powers to provide financial services or services relating to land.U.K.

(1)A building society may provide services of the descriptions for the time being specified in Part I of Schedule 8 to this Act subject to the restrictions (if any) for the time being specified in Part II or III of that Schedule.

(2)The appropriate authority may by order vary Schedule 8 by adding to or deleting from it any description of service or any provision or by varying any description of service or any provision for the time being specified or contained in it but not so as to confer any power to provide services other than services that appear to the authority making the order to be financial services or services relating to land or to be services similar to any such services.

(3)Any power conferred on building societies under subsection (2) above may be conferred on building societies of a specified description or all building societies other than those of a specified description.

(4)Where a provision of Part III of that Schedule states that a power to provide a specified service is available only to a subsidiary or other associated body of a building society the power to provide that service is to be treated as a power of the society for the purposes of section 18 only.

(5)Any power to provide a specified service, if available to a building society or any subsidiary or other associated body, must, in order to be exercisable, be adopted by the society.

(6)Subject to any specified restriction, any power to provide a specified service shall be exercisable in relation to members of the building society or other persons.

(7)Part IV of Schedule 8 has effect for supplementing Parts I, II and III of that Schedule and the power under subsection (2) above to vary that Schedule includes, without prejudice to the generality of that subsection, power to make such provision as appears to the authority making the order to be appropriate by way of a sanction for contravention of any restriction for the time being contained in Part III.

(8)The “appropriate authority” for the purpose of exercising the powers conferred by this section is the Treasury as regards any variation of Part I of Schedule 8 with or without other provision and the Commission in any other case.

(9)The power to make an order under subsection (2) above is exercisable by statutory instrument and—

(a)in the case of an order varying Part I of Schedule 8 with or without other provision no such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament, and

(b)in the case of any other order, the instrument containing it shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(10)An order under subsection (2) above may make such incidental and transitional provision as appears to the authority making the order to be necessary or expedient.

(11)In this section—

  • financial services” means any of the following services, that is to say, banking, insurance, investment, trusteeship and executorship;

  • services relating to land” means any service relating to the acquisition, management, development or disposal of land; and

  • specified” means specified for the time being in Schedule 8 to this Act.]

Textual Amendments

F161Pt. V (ss. 34-35) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)(y)(cc)(iv)

[F162F16335Prohibition on linking services.U.K.

(1)A building society which, or a subsidiary of which, provides services of any description specified in Part I of Schedule 8 to this Act shall not offer to make a class 1 advance to any person subject to a condition that any services of that description which are or may be required by that person in connection with the making of the advance shall be provided by the society or its subsidiary.

(2)Where, in connection with a class 1 advance by a building society, several services are made available by a building society or by a building society and one or more of its subsidiaries the society shall not, and shall secure that each of its subsidiaries does not,make the services available on terms other than terms which distinguish the consideration payable for each service so made available; nor shall any of its subsidiaries make the services available on terms other than terms which make that distinction.

(3)Nothing in subsection (2) above prevents a service from being provided free of charge in particular circumstances.

(4)If a building society contravenes subsection (1) or (2) above the society shall be liable on summary conviction to a fine not exceeding level 4 on the standard scale and so shall any officer who is also guilty of the offence.

(5)If a body corporate which is a subsidiary of a building society contravenes subsection (2) above the body corporate shall be liable on summary conviction to a fine not exceeding level 4 on the standard scale.]

Textual Amendments

F162Pt. V (ss. 34-35) repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(a), 46(2), 47(3), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pts. I(b), II(j)(y)(cc)(iv)

Part VIU.K. Powers of Control of the Commission

[F164Powers in relation to principal purpose and nature limits]U.K.

Textual Amendments

F164S. 36 and cross-heading substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 13(1), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(k)

[F16536Power to direct restructuring of business etc.U.K.

(1)The provisions of this section have effect where, by reason of a building society’s failure to comply with—

(a)the requirement imposed by section 5(1)(a) or (b) (purpose or principal purpose and principal office);

(b)the requirement imposed by section 6(1) (the lending limit); or

(c)the requirement imposed by section 7(1) (the funding limit),

the powers conferred by this section become exercisable by the Commission in relation to the society (the requirements referred to in paragraphs (a), (b) and (c) above being referred to in this section as “the relevant statutory requirements”).

(2)The Commission may give the society a direction under subsection (3), (5) or (6) below.

(3)A direction by the Commission under this subsection is a direction requiring the society, within a specified period, to submit for its approval a plan (in this section referred to as a “restructuring plan") designed to secure the following purposes, that is to say—

(a)that the society will, by the end of a specified period, comply with the relevant statutory requirements as applied at the last day of that period, and

(b)that it will not thereafter fail to comply with those requirements.

(4)For the purpose of applying the relevant statutory requirements as directed by subsection (3)(a) above—

(a)in the case of a requirement which operates by reference to a quarter day, the day as at which the requirements are to be applied shall be treated as such a day; and

(b)the assets and liabilities of the society shall be determined by reference to a balance sheet prepared by the directors by reference to that day and sent to the Commission within the period of three months beginning with that day;

and subsection (4) of section 81 shall apply in the event of a default in complying with this provision as it applies in the event of a default in complying with subsection (2) of that section.

(5)A direction by the Commission under this subsection is a direction requiring the society—

(a)within a specified period, to submit to its members for their approval at a meeting the requisite transfer resolutions for a transfer of the business of the society to a company under section 97; and

(b)to notify the Commission of the result of the meeting.

(6)A direction by the Commission under this subsection is a direction requiring the society, at its option, either—

(a)within a specified period, to submit for approval a restructuring plan; or

(b)within a specified period, to submit to its members for their approval at a meeting the requisite transfer resolutions for a transfer of the business of the society to a company under section 97;

and, within a specified period, to notify the Commission of the option it has decided to pursue.

(7)Where the Commission gives a direction under subsection (3), (5) or (6) above, it may also give a direction under this subsection—

(a)imposing limitations on the issue of shares, the acceptance of deposits or the making of loans;

(b)requiring the society within a specified period to take certain steps, or to refrain from adopting or pursuing a particular course of action, or to restrict the scope of its business in a particular way;

(c)requiring the society within a specified period to take steps with regard to the conduct of the business of any connected undertaking of the society;

(d)requiring within a specified period the removal of any director or other officer.

(8)Where a restructuring plan is submitted by a society to the Commission under subsection (3) or (6) above then—

(a)if it appears to the Commission that the plan is reasonably likely to secure its purposes, the Commission shall approve it and direct the society to carry it out;

(b)if it appears to it that the plan is, with modifications, likely to secure its purposes and the Commission and the society agree on appropriate modifications within the period of 21 days from the date on which the Commission notifies the society of the modifications it proposes for the society’s agreement, the Commission shall approve the plan as modified and direct the society to carry it out;

but otherwise it shall reject the plan.

(9)Where a meeting is held, in pursuance of a direction under subsection (5) or (6) above, for the purpose of voting on the requisite transfer resolutions, then—

(a)if the resolutions are agreed to and the confirmation of the transfer by the Commission is obtained, the society shall proceed under section 97 to transfer its business to a successor company;

(b)if either resolution is disagreed to, the society shall notify the Commission of that fact as soon as it is practicable to do so.

(10)In the event of the Commission receiving a notice from a society under subsection (9)(b) above, it may, if it thinks fit, serve on the society a direction requiring it, within a specified period, to submit to the Commission for its approval a restructuring plan; and if the Commission does so, subsection (8) above shall apply as if the plan had been submitted under subsection (3) above.

(11)The Commission may, if it thinks fit, extend or further extend any period during which a building society is to take any steps required of it under any of the foregoing provisions of this section and may do so whether or not application is made to it before the expiry of the period in question.

(12)If a building society which has been directed under subsection (8) above to carry out a restructuring plan fails, within the period allowed to it under the foregoing provisions of this section, to secure the purpose of the plan specified in subsection (3)(a) above, the powers conferred on the Commission by section 36A shall become exercisable in relation to the society.

(13)If a building society fails, within the period allowed to it under the foregoing provisions of this section—

(a)where it has been given a direction under subsection (3) or (10) above, to submit a restructuring plan;

(b)where it has been given a direction under subsection (5) above, to submit to members the requisite transfer resolutions;

(c)where it has been given a direction under subsection (6) above, to either submit a restructuring plan or submit to members the requisite transfer resolutions;

(d)where it has been given a direction under subsection (7) above, to comply with any requirement imposed by the direction;

(e)where it has been directed under subsection (8) above to carry out a restructuring plan, to secure the purpose of the plan specified in subsection (3)(a) above;

(f)to agree to the requisite transfer resolutions submitted to the members in pursuance of subsection (5) or (6) above; or

(g)where it has agreed to the requisite transfer resolutions, to proceed under section 97 to transfer its business to the successor company,

or if the Commission rejects a restructuring plan under subsection (8) above, the powers conferred on the Commission by section 37 shall become exercisable in relation to the society.

(14)The provisions of Schedule 7A to this Act regulating the giving of directions apply in relation to directions under subsection (3), (5), (6), (7) or (10) above.

(15)In this section—

  • confirmation”, “the requisite transfer resolutions” and “transfer” have the same meaning as in section 97;

  • quarter day” has the same meaning as in sections 6 and 7.

(16)Nothing in this section implies that it is improper for the Commission to give to a building society or building societies generally an indication of the action it might or might not take in relation to any proposed activity of theirs.]

Textual Amendments

F165S. 36 and cross-heading substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 13(1), 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(k)

[F16636APower to make prohibition orders.U.K.

(1)Where by virtue of section 36(12) the powers conferred by this section become exercisable in relation to a building society, the Commission may serve on the society a notice of the Commission’s intention to issue a prohibition order directed to the society.

(2)A prohibition order under this section is an order—

(a)prohibiting, subject to the saving or transitional provisions of the order, the continuance or, as the case may be, the carrying on of the activity specified in the order after a date so specified, either absolutely or unless conditions so specified are complied with; and

(b)requiring, subject to the saving or transitional provisions of the order, the disposal within a period specified in the order of all assets acquired or otherwise in its possession by virtue of the activity.

(3)A disposal of assets in pursuance of a prohibition order shall vest the assets in the transferee but without prejudice to any claim against the society by a person who had an interest in the assets.

(4)The saving or transitional provisions which may be included in a prohibition order shall be such as appear to the Commission to be just having regard to—

(a)the interests of shareholders of and depositors with the society; and

(b)the interests of other persons who will be affected by the order.

(5)A notice under subsection (1) above of the Commission’s intention to issue a prohibition order shall—

(a)specify the date on which the order is to be issued, being a date not earlier than the end of the period of 21 days beginning with the date of the notice;

(b)specify the terms of the order, including any saving or transitional provisions proposed to be included in it; and

(c)inform the society of its right to make representations to the Commission, not less than 7 days before the date specified in the order, as to the provisions to be included in the order.

(6)After considering any representations made by the society, the Commission may make the prohibition order with such saving and transitional provisions (if any) as it thinks just; and where it does so, the Commission—

(a)shall issue the order by causing it to be served on the society; and

(b)shall direct the central office to keep a copy of it in the public file of the society.

(7)A prohibition order so made and issued shall, subject to subsection (11) below, take effect on the date specified in the order.

(8)A copy of any order issued under subsection (6) above shall also be served on each director and on the chief executive of the society.

(9)The requirement of subsection (8) above, so far as it relates to directors, is satisfied by serving a copy on each director whose appointment has been officially notified and the non-receipt of a copy by a director or the chief executive does not affect the validity of the order.

(10)Subject to subsection (11) below, a prohibition order shall remain in force until revoked by the Commission.

(11)The Commission may suspend or revoke a prohibition order so far as it relates to an asset the disposal of which appears to it, on the application of the society, to be impracticable.

(12)If a society contravenes a prohibition order issued against it under this section—

(a)the power conferred on the Commission by section 37(1) shall become exercisable in relation to the society; and

(b)the Commission may exercise that power or certify the contravention in writing to the High Court, or do both of those things;

but the contravention shall not invalidate any transaction or other act.

(13)On receiving such a certification, the High Court—

(a)may inquire into the case; and

(b)after hearing any witnesses who may be produced against or on behalf of the society and after hearing any statement which may be offered in defence, may punish the society in like manner as if it had been guilty of contempt of the court.

(14)Where a contravention of a prohibition order which is so certified is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any officer of the society he, as well as the society, may be punished in like manner as if he had been guilty of contempt of the court.

(15)In the application of this section to a building society whose principal office is in Scotland, references to the High Court shall be read as references to the Court of Session.]

Textual Amendments

F166S. 36A inserted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 14, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(l)

[F16737Powers to petition for winding up etc.U.K.

(1)Where—

(a)by virtue of section 36(13) the powers conferred by this section become exercisable in relation to a building society;

(b)by virtue of section 36A(12) the power conferred by this subsection becomes so exercisable; or

(c)the Commission has reason to believe that a building society has ceased to comply with the requirement imposed by section 5(1)(a) (purpose or principal purpose),

the Commission may present a petition to the High Court for the winding up of the society under the applicable winding up legislation; and the power conferred by this subsection is available to the Commission whether or not it has previously presented a petition.

(2)Where by virtue of section 36(13) the powers conferred by this section become exercisable in relation to a building society, the Commission may make an application to the High Court for an order giving directions to the society under subsection (3) below; and the power conferred by this subsection is available to the Commission whether or not it has previously made an application for such an order.

(3)An order under this subsection is an order directing the society to comply with a direction under subsection (3), (5), (6), (7) or (10) of section 36 as directed in the order, or to carry out a restructuring plan as so directed.

(4)Where the High Court makes an order under subsection (3) above, the Commission shall give a copy of it to the central office and the central office shall keep the copy in the public file of the society.

(5)The High Court shall not make an order winding up the society on an application under subsection (1)(c) above unless it is satisfied that the society has ceased to comply with the requirement imposed by section 5(1)(a).

(6)In the application of this section to a building society whose principal office is in Scotland, references to the High Court shall be read as references to the Court of Session.]

Textual Amendments

F167S. 37 substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 15, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(m)

Power to determine extent of building society powersU.K.

[F16838 Power to determine building society’s powers.U.K.

(1)The Commission shall have power to determine whether a particular activity of a building society or its subsidiary is or is not within the existing powers of the society and may, if it thinks fit, take such professional advice as it considers it needs to enable it to make the determination.

(2)A determination may be made under this section in relation to an activity which is proposed to be carried on as well as in relation to one which is being carried on.

(3)The powers of the Commission in relation to a building society are exercisable—

(a)on an application made by the society, requesting the Commission to make the determination,

(b)on an application made by the society at the direction of the central office under Part II of Schedule 2 to this Act, or

(c)on the Commission’s own motion or on an application made by the society at its direction,

as provided in subsection (4), (5), (6) or (8) below.

(4)A building society may at any time, on complying with the following provisions of this section, make an application to the Commission for a determination under this section whether an activity specified in the application is or is not within its powers if the directors of the society are of the opinion that there is a doubt about the existence or extent of the powers to carry on the activity which requires to be resolved in the interests of the society.

(5)A building society which has been directed by the central office under Part II of Schedule 2 to this Act to make an application to the Commission under this section shall, in accordance with the direction, make an application to the Commission for a determination whether the activity specified in the application is or is not within its powers.

(6)If it appears to the Commission at any time that a building society or its subsidiary is carrying on or is about to carry on an activity which is or may be outside the existing powers of the society, the Commission may, by notice to the society specifying the activity and its opinion, direct it to make an application for a determination under this section whether the activity is or is not within its powers and it shall be the duty of the society to comply with the direction.

(7)A direction under subsection (6) shall require the application to be made within the period of 21 days beginning with the date on which the notice is given, but the Commission may extend or further extend the period within which the application is to be made.

(8)If a building society fails, within the time allowed by or under subsection (7) above, to make an application as directed under subsection (6) above, the Commission may, of its own motion, proceed to make a determination under this section as if an application had been made by the society.

(9)An application by a building society under subsection (4), (5) or (6) above shall be made in writing, signed by the secretary as such an application, and shall comprise—

(a)a statement of the question for determination, specifying the activity and the powers in question, the nature of the doubt and (except in the case of an application under subsection (6)) the arguments for and against the activity being within those powers, as they appear to the society, and

(b)such documents or draft documents and such other information as are necessary to enable the determination to be made.

(10)The statement of the question for determination may, with the agreement of the Commission, be amended at any time before the determination is made and in that event further documents and other information may be included in the application.

(11)The Commission may, by notice to the society, require a society making an application under subsection (4), (5) or (6) above to amend the statement of the question for determination or to furnish such further documents or other information or such explanations of the statement, documents or information as appear to it to be necessary to enable the determination of the question to be made; and the Commission may allow or require the explanations to be made orally instead of in writing.

(12)In this section and sections 39 and 40—

  • activity” includes the exercise, or purported exercise, of any power under this Act, including the holding of any property or rights;

  • existing”, with reference to powers, means existing at the relevant date and, in relation to a building society, “existing powers” denotes the powers it has, or has adopted, under this Act, with any restrictions it has assumed, as at that date but disregarding anything done by the Commission and then in force (otherwise than under section 39 or 40) by virtue of which the society is precluded from exercising, or is subject to restrictions on the exercise of, its powers;

  • the relevant date”, in relation to a building society, means—

(a)in a case where the Commission decides to proceed of its own motion, the date when the Commission so decides;

(b)in a case where the society makes the application at the direction of the central office, the date specified in the direction; and

(c)in any other case, the date on which the society makes the application.

(13)Nothing in this section or section 39 or 40 implies that it is improper for the Commission to give to a building society or building societies generally an indication of the action it might or might not take in relation to any proposed activity of theirs; and if any determination comes to be made in relation to the activity the proceedings shall not be liable to be set aside by reason of the indication having been given.]

Textual Amendments

F168Ss. 38-40 repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(d), 46(2), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pt. II(j)(y)(cc)(v)

[F16939 The determination: notification, effect, appeal.U.K.

(1)A determination of the Commission under section 38 shall be in writing and, as soon as practicable after it is made, the Commission shall notify the society of the determination and the reasons for it.

(2)On receiving notice of the determination the society shall, if it is a determination that the activity in question was outside its powers, forthwith send a copy of it to every person who the society has reason to believe will or may be affected by it other than a person whose only interest is as a shareholder in, or depositor with, the society.

(3)Subject to subsection (4) below, the Commission shall, within the period of one month beginning with the date of the notice to the society under subsection (1) above, publish the determination in such manner as it thinks appropriate.

(4)Where the determination is made on an application made by the society under section 38(4), the Commission may, on the application of the society, postpone the publication of the determination for such period as it thinks fit, not exceeding the period of six months beginning with the date of the notice to the society under subsection (1) above, if it appears to the Commission that it is just to do so.

(5)A determination under section 38 shall bind all persons, whether or not (in the case of an application) they were parties to it and, subject to any appeal under subsection (8) below, shall be final and conclusive for all purposes.

(6)Where the activity in question was at the relevant date being carried on by the society and the determination is that the activity is outside the powers of the society the directors of the society shall be personally liable, jointly and severally, for any loss or expense to the society consequent on the activity’s being outside its powers (including, if a prohibition order under section 40 is made, any loss or expense consequent on the order).

(7)If it appears to the Commission that proceedings under subsection (6) above have not been, but ought in the interests of the society to be, brought, the Commission may bring such proceedings in the name and on behalf of the society; and if it does so the Commission may indemnify the society against the costs or expenses incurred by the society in, or in connection with, proceedings brought by virtue of this subsection.

(8)Any person affected by a determination under section 38 shall be entitled within the period of six weeks beginning with the date of the notice under subsection (1) above or such further period as the Court may allow, to appeal to the High Court against the determination in accordance with rules of court on the ground that it is erroneous in law and the Commission shall be made respondent on the appeal.

(9)On any appeal to the High Court under subsection (8) above the High Court may confirm, reverse or vary the determination appealed from.

(10)In the application of this section to a building society whose principal office is in Scotland, references to the High Court shall be read as references to the Court of Session.

(11)The Commission may, if it thinks fit, require a building society in whose case it has made a determination under section 38 to pay such fee as the Commission directs.]

Textual Amendments

F169Ss. 38-40 repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(d), 46(2), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pt. II(j)(y)(cc)(v)

[F17040 Power to make prohibition orders.U.K.

(1)On or at any time after making a determination under section 38 that a specified activity is outside the powers of a building society, the Commission shall, if it appears to it—

(a)that the activity is being carried on by the society, or

(b)that the activity has not been but, unless a prohibition order is made under this section, may be carried on by the society.

serve on the society a notice of the Commission’s intention to issue a prohibition order directed to the society.

(2)A prohibition order under this section is an order prohibiting, subject to the saving or transitional provisions of the order, the continuance or, as the case may be, the carrying on of the activity specified in the order, either absolutely or unless conditions specified in the order are complied with, after a date specified in the order and requiring, subject to the saving or transitional provisions of the order, the disposal within a specified period of all assets acquired or otherwise in its possession by virtue of the activity.

(3)A disposal of assets in pursuance of a prohibition order shall vest the assets in the transferee but without prejudice to any claim against the society by a person who had an interest in the assets.

(4)The saving or transitional provisions which may be included in a prohibition order shall be such as appear to the Commission to be just having regard to the interests of shareholders of and the depositors with the society and the interests of other persons who will be affected by the order; but the provisions shall not in any respect suspend the operation of the order beyond the period of one year.

(5)A prohibition order may include a direction for treating assets of any description as assets of the class specified in the direction for the purposes of the requirements of Part III for the structure of commercial assets.

(6)A notice under subsection (1) above of the Commission’s intention to issue a prohibition order shall—

(a)specify the date on which the order is to be issued, being a date not earlier than the end of the period of 21 days beginning with the date of the notice;

(b)specify the terms of the order, including any saving or transitional provisions proposed to be included in it;

(c)inform the society of its right to make representations to the Commission before the order is issued as to the saving or transitional provisions to be included in the order; and

(d)inform the society of its duty under subsection (7) below.

(7)On receiving a notice under subsection (1) above the society shall forthwith send a copy of it to every other person whom it has reason to believe will or may be affected by the determination under section 38 on which the order will be founded.

(8)Any person who may be affected by the determination under section 38 on which the order will be founded may, at any time before the order is made, make representations to the Commission as to the inclusion in it of saving or transitional provisions affecting his interests and they may be made orally or in writing.

(9)After considering any representations made under subsection (8) above the Commission shall make the prohibition order with such saving and transitionalprovisions (if any) as it thinks just, shall issue the order by causing it to be served on the society and shall direct the central office to keep a copy of it in the public file of the society.

(10)A prohibition order so made and issued shall, subject to subsection (15) below, take effect on the date specified in the order.

(11)A copy of any order issued under subsection (9) above shall also be served on each director and on the chief executive of the society.

(12)The requirement of subsection (11) above, so far as it relates to directors, is satisfied by serving a copy on each director whose appointment has been officially notified and the non-receipt of a copy by a director or the chief executive does not affect the validity of the direction.

(13)Subject to subsection (14) below, a prohibition order shall remain in force until revoked by the Commission.

(14)The Commission may suspend or revoke a prohibition order so far as it relates to an asset the disposal of which appears to it, on the application of the society, to be impracticable.

(15)If, when a prohibition order has been made, an appeal is pending before the High Court under section 39(8) against the determination on which the order is founded the High Court may, on application made to it, order that the operation of the prohibition order be stayed until the determination of the appeal; but it shall not do so unless it is satisfied that it is in the public interest that it be stayed.

(16)If a society contravenes a prohibition order issued against it under this section the Commission may certify the contravention in writing to the High Court; and the Court may thereupon inquire into the case and, after hearing any witnesses who may be produced against or on behalf of the society and after hearing any statement which may be offered in defence, may punish the society in like manner as if it had been guilty of contempt of the court.

(17)In the application of this section to a building society whose principal office is in Scotland, references to the High Court shall be read as references to the Court of Session and references to staying shall be read as references to sisting.]

Textual Amendments

F170Ss. 38-40 repealed (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 12(1)(d), 46(2), Sch. 9; S.I. 1997/2668, art. 2, Sch. Pt. II(j)(y)(cc)(v)

Powers in relation to authorisationU.K.

41 Power to direct application to renew authorisation.U.K.

(1)If, with respect to a building society for which an authorisation is in force, the Commission has reason to believe that the society’s business is or may be being conducted in a way that may not adequately protect the investments of shareholders and depositors then, subject to subsections (2) and (3) below, it may by notice direct the society to make an application under this section to renew its authorisation.

(2)The power conferred on the Commission by this section is not exercisable more than once during any period of five years during the whole of which the society has held a current authorisation except where, during that period, the society has, under section 94, undertaken to fulfill the engagements of another society.

(3)A notice under subsection (1) above shall require the society to make the application for renewal within such period as is specified in the notice, being a period not shorter than three nor longer than six months beginning with the date of the notice, but the Commission may, on representations being made to it, extend or further extend the period within which the application is to be made.

(4)A notice under subsection (1) shall indicate the grounds on which the Commission has decided to give a direction under this section.

(5)Authorisation, if renewed under this section, shall be granted unconditionally or subject to conditions as provided by subsection (6) or (7) below.

[F171(5A)The Commission shall not grant renewed authorisation to a society if it appears to the Commission that—

(a)the society is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society.]

(6)Subject to subsection [F172(5A) above and subsection](11) below, the Commission, on an application duly made for renewal of authorisation under this section, shall grant unconditional authorisation to the society if it is satisfied that—

(a)the society has qualifying capital of an amount which is not less than the prescribed minimum;

[F173(b)the society has adequate reserves and other capital resources;]

(c)the chairman of the board of directors and any executive directors, the chief executive, the secretary and the managers (if any) are each fit and proper persons to hold their respective offices in the society;

(d)the board of directors, with the chief executive and secretary, have the capacity and intention to direct the affairs of the society in accordance with the criteria of prudent management and have secured that those criteria are being satisfied; F174. . .

[F175(dd)each of the persons who, either alone or with any associate or associates, has a qualifying holding in the society is a fit and proper person to have such a holding; and]

(e)the investments of shareholders and depositors will be adequately protected without the imposition of conditions.

(7)If the Commission, on an application so made, is not satisfied of the matters specified in subsection (6) above in relation to the society, it shall, subject to subsection [F172(5A) above and subsection](10) below—

[F176(a)if those matters include the matter specified in paragraph (a) of that subsection, refuse to grant authorisation; or

(b)in any other case—

(i)if it is satisfied that the imposition of conditions would secure the protection of the investments of shareholders and depositors, grant authorisation subject to such conditions to be complied with by the society (whether or not they correspond to any conditions in force as respects the current authorisation) as the Commission thinks fit to impose to secure that purpose; or

(ii)if not so satisfied, refuse to grant the authorisation;]

and if it refuses to grant authorisation under this section the authorisation current under section 9 shall expire on the date specified by the Commission in the notice of its refusal except where section 46(4) applies.

(8)If the Commission refuses to grant authorisation to a building society under this section it shall inform the central office of the fact and the date on which the current authorisation of the society expires; and the central office shall record that date in the public file of the society.

(9)Subsections (6) and (7) of section 9 apply as respects the imposition of conditions on the renewal of authorisation under this section as they apply as respects the imposition of conditions under that section.

(10)The provisions of Schedule 3 to this Act regulating—

(a)the making and determination of applications for authorisation,

(b)the furnishing of information or additional information in connection with such applications, and

(c)the imposition of conditions of authorisation,

apply in relation to authorisation under this section.

(11)The making of an application under this section at the direction of the Commission shall not preclude the Commission, at any time while the application is pending, from imposing conditions on the society’s authorisation under section 42 or revoking the society’s authorisation under section 43; but if it revokes the authorisation the proceedings under this section shall abate.

(12)An authorisation granted under this section shall be treated for the purposes of this Act as an authorisation granted under section 9 and in particular subsection (9) of that section shall apply as if any conditions had been imposed under subsection (5) of that section.

[F177(13)Any expression used in this section to which a meaning is given by subsection (13) of section 9 has that meaning in this section; and for the purposes of this section subsection (13A) of that section shall apply as if the reference to subsection (4)(b) of that section were a reference to subsection (6)(c) of this section.]

F178(14). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F178(15). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F178(16). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F179(17)In this section “adequate” means adequate having regard to the range and scale of the society’s business; and in this subsection—

(a)business” includes business the society proposes to carry on; and

(b)the reference to the society’s business includes, where it has connected undertakings, a reference to the business of those undertakings.]

Textual Amendments

F171S. 41(5A) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(2)

F172Words in s. 41(6)(7) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(2)

F173S. 41(6)(b) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 12(2); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(iv)

F174S. 41(6): word following paragraph (d) omitted (1.1.1993) by virtue of S.I. 1992/3218, reg. 69

F175S. 41(6)(dd) inserted (1 1.1993) by S.I. 1992/3218, reg. 69

F177S. 41(13) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 12(4); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(iv)

F179s. 41(17) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 12(5); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(iv)

Modifications etc. (not altering text)

C44S. 41 continued for 5 years from 25.7.1991 by S.I. 1991/1518, art. 2 (revoked (25.7.1996) by S.I. 1996/1844, art. 3).

S. 41 continued for 5 years from 25.7.1996 by S.I. 1996/1844, art. 2

S. 41 made permanent (9.6.1997) by 1997 c. 32, s. 43, Sch. 7 para. 12(1); S.I. 1997/1427, art. 2(k)(n)(ii)

42 Imposition of conditions on current authorisation.U.K.

(1)If, with respect to a building society for which an authorisation is in force, the Commission considers it expedient to do so in order to protect the investments of shareholders or depositors it may, subject to subsection (7) below, impose conditions to be complied with by the society.

(2)Section 45 has effect for the purpose of any determination whether or not it is expedient to exercise the powers conferred by this section.

(3)Failure by a society to comply with conditions imposed under this section shall render it liable, if other conditions are not imposed on it under this section, to have its authorisation revoked under section 43(1).

(4)The conditions that may be imposed by the Commission under this section may—

(a)relate to any activities of the society, whether or not those for which authorisation is required; and

(b)require the society to take certain steps or to refrain from adopting or pursuing a particular course of action or to restrict the scope of its business in a particular way.

(5)Without prejudice to the generality of subsection (4) above, conditions imposed under this section may—

(a)impose limitations on the issue of shares, the acceptance of deposits or the making of advances or other loans;

(b)require the society to take steps with regard to the conduct of the business of any [F180connected undertaking]; F181. . .

(c)require the removal of any director or other officer.

[F182and

(d)

require any person who, either alone or with any associate or associates, has a qualifying holding in the society so to reduce that holding that it ceases to be such a holding.]

(6)The Commission may impose conditions under this section where it proceeded under section 41 or where it proceeded under section 43 with a view to revoking the society’s authorisation.

(7)[F183Subject to section 42A]the Commission shall not impose conditions under this section except in accordance with the provisions of Part III or, where applicable, Part IV of Schedule 3 to this Act; and the other provisions of that Part shall have effect in relation to the imposition of conditions under this section.

(8)Conditions imposed under this section—

(a)may be varied from time to time (and notwithstanding any pending appeal) by agreement between the Commission and the society; and

(b)may be revoked at any time by the Commission if it is satisfied that the investments of shareholders and depositors will be adequately protected without the conditions.

(9)Any expression used in this section to which a meaning is given by section 9(13) has that meaning in this section.

Textual Amendments

F180Words in s. 42(2)(b) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 13(1); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(v)

F181S. 42(5): word immediately before paragraph (c) omitted (1. 1. 1993) by virtue of S.I. 1992/3218, reg. 70

F182S. 42(5)(d) and word preceding it inserted (1. 1. 1993) by S.I. 1992/3218, reg. 70

Modifications etc. (not altering text)

C46S. 42(1) applied (with modifications) (1.7.1995) by S.I. 1995/1442, reg. 51(1) (with transitional and transitory provisions in regs. 53(2), 54(2))

[F18442AImposition or variation of conditions in urgent cases.U.K.

(1)No notice need be given under Part III or Part IV of Schedule 3 to this Act in respect of the imposition of conditions under section 42 in any case in which the Commission considers that the conditions should be imposed as a matter of urgency.

(2)Conditions imposed under section 42 may be varied by the Commission without the agreement of the building society concerned in any case in which the Commission considers that the conditions should be varied as a matter of urgency.

(3)In any such case the Commission may by written notice to the building society concerned impose or vary the conditions.

(4)Any such notice shall state the reasons for which the Commission has acted and particulars of the rights conferred by subsection (6) below and by section 46.

(5)If conditions as imposed or varied by a notice under subsection (3) above include a requirement for the removal from office of any person who is an officer of the society, the Commission shall give that person—

(a)a copy of that notice; and

(b)a statement of his rights under subsection (6) below;

but the Commission may omit from a copy notice given to a person by virtue of this subsection any matter which does not relate to him.

(6)A building society to which a notice is given under subsection (3) above of the imposition or variation of conditions, and a person who is given a copy of it by virtue of subsection (5) above, may within the period of 14 days beginning with the day on which the notice was given make representations to the Commission.

(7)After giving a notice under subsection (3) above imposing or varying conditions and taking into account any representations made in accordance with subsection (6) above the Commission shall decide whether—

(a)to confirm or rescind its original decision; or

(b)to impose different conditions or to vary the conditions in a different manner.

(8)The Commission shall within the period of 28 days beginning with the day on which the notice was given under subsection (3) above give the building society concerned written notice of its decision under subsection (7) above and, except where the decision is to rescind the original decision, the notice shall state the reasons for the decision.

(9)Where the notice under subsection (8) above is of a decision to take the action specified in subsection (7) (b) above the notice under subsection (8) shall have the effect of imposing the conditions specified in the notice, or varying the conditions in the manner so specified, with effect from the date on which the notice is given.]

Textual Amendments

[F18542BPower to direct transfers of engagements or business.U.K.

(1)If, with respect to a building society for which an authorisation is in force, the Commission considers it expedient to do so in order to protect the investments of shareholders or depositors, it may either—

(a)direct the society, within a specified period, to transfer all its engagements to one or more other building societies under section 94; or

(b)direct the society, within a specified period, to transfer its business to an existing company under section 97.

(2)Failure by a society to comply with a direction given under subsection (1) shall render it liable to have its authorisation revoked under section 43(1).

(3)Where the Commission—

(a)gives a building society a direction under subsection (1)(a) above; or

(b)does not give a building society such a direction solely because the society is already seeking to transfer all its engagements to one or more other building societies under section 94,

the Commission may, if it considers it expedient to do so in order to protect the investments of shareholders or depositors, direct that, instead of resolving to transfer its engagements by the two resolutions required by section 94(2) (with or without the additional resolution required by section 94(3)), the society may resolve to do so by a resolution of the board of directors.

(4)Where the Commission—

(a)gives a building society a direction under subsection (1)(b) above; or

(b)does not give a building society such a direction solely because the society is already seeking to transfer its business to an existing company under section 97,

the Commission may, if it considers it expedient to do so in order to protect the investments of shareholders or depositors, direct that, instead of approving the transfer and the terms of the transfer by the two resolutions required by section 97(4)(c), the society may approve the transfer and those terms by a resolution of the board of directors.

(5)A direction under subsection (3) or (4) above—

(a)shall be in writing;

(b)may be given subject to such limitations or conditions as the Commission may think fit; and

(c)unless renewed by a further direction, shall cease to have effect at the end of the period of 90 days beginning with the day on which it is given.

(6)Section 45 has effect for the purpose of any determination whether or not it is expedient to exercise the powers conferred by this section.

(7)In Schedule 8A to this Act—

(a)Part I (which contains provisions modifying sections 94 to 96 and Schedule 16 to this Act) shall apply where a direction is given under subsection (3) above; and

(b)Part II (which contains provisions modifying sections 97 to 100 and Schedule 17 to this Act) shall apply where a direction is given under subsection (4) above.

(8)The Commission, with the consent of the Treasury, may make regulations for the purpose of specifying, as prescribed matters—

(a)the matters of which statements under paragraph 3 of Schedule 8A to this Act are to give particulars; and

(b)the matters of which statements under paragraph 9 of that Schedule are to give particulars.

(9)The power to make regulations under this section is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.]

Textual Amendments

[F18642CNotification and confirmation of transfer directions.U.K.

(1)A direction under section 42B(1) shall be given by notice in writing and may be varied by a further direction; and a direction may be revoked by the Commission by a notice in writing to the building society concerned.

(2)A direction under section 42B(1), except one varying a previous direction with the agreement of the building society concerned—

(a)shall state the reasons for which it is given and give particulars of the society’s rights under subsection (3) below and section 46; and

(b)shall cease to have effect at the end of the period of 28 days beginning with the day on which it is given unless before the end of that period it is confirmed by a further written notice given by the Commission to the society concerned.

(3)A building society to which a direction is given which requires confirmation under subsection (2) above may, within the period of 14 days beginning with the day on which the direction is given, make written representations to the Commission; and the Commission shall take any such representations into account in deciding whether to confirm the direction.]

Textual Amendments

43 Revocation of authorisation.U.K.

(1)The Commission may, subject to subsection (4) below, revoke a building society’s authorisation if—

(a)it appears to the Commission that at no time during a financial year of the society which began and ended during the currency of the authorisation did the society raise funds or accept deposits of money in pursuance of the authorisation;

(b)it appears to the Commission that a period of six months has elapsed since the end of a financial year of the society without the society’s having sent it to the annual accounts for that year as required by section 81(2);

(c)the Commission is satisfied that, where the society’s authorisation is subject to conditions, a condition has not been complied with by the society;

[F187(cc)the Commission is satisfied that a direction under section 42B(1) has not been complied with by the society;

(cd)it appears to the Commission that—

(i)a composition or arrangement with creditors has been made in respect of the society;

(ii)a receiver or manager of the society’s undertaking has been appointed;

(iii)possession has been taken, by or on behalf of the holders of any debenture secured by a charge, of any property of the society; or

(iv)an administration order has been made in relation to the society under section 8 of the M33Insolvency Act 1986; or]

(d)the Commission considers it expedient to do so in order to protect the investments of shareholders or depositors.

[F188(1A)The Commission may, subject to subsection (4) below, revoke a building society’s authorisation if—

(a)it appears to the Commission that the society’s principal place of business is or may be outside the United Kingdom;

(b)it appears to the Commission that the society has carried on in the United Kingdom or elsewhere a listed activity (other than the acceptance of deposits or other repayable funds from the public) without having given prior notice to the Commission of its intention to do so;

F189(bb)it appears to the Commission that the society has failed to comply with any obligation imposed on it by or under Part IV of this Act;;]

(c)the Commission is informed by The Securities and Investments Board, or a connected UK authority having regulatory functions in relation to the provision of financial services, that the society—

(i)has contravened any provision of the Financial Services Act 1986 or any rules or regulations made under it;

(ii)in purported compliance with any such provision, has furnished that Board or authority with false, misleading or inaccurate information;

(iii)has contravened any prohibition or requirement imposed under that Act; or

(iv)has failed to comply with any statement of principle issued under that Act;

(d)the Commission is informed by the Director General of Fair Trading that the society, or any of the society’s employees, agents or associates (whether past or present), has done any of the things specified in paragraphs (a) to (d) of section 25(2) of the Consumer Credit Act 1974;

(e)it appears to the Commission that the society has failed to comply with any obligation imposed on it by the Banking Coordination (Second Council Directive) Regulations 1992 [F190or the Credit Institutions (Protection of Depositors) Regulations 1995]; or

(f)the Commission is informed by a supervisory authority in another member State that the society has failed to comply with any obligation imposed on it by or under any rule of law in force in that State for purposes connected with the implementation of the Second Council Directive [F191or Directive 94/19/EC on deposit-guarantee schemes].

(2)Section 45 has effect for the purposes of any determination whether or not it is expedient to exercise the power conferred by subsection (1)(d) above.

(3)The Commission shall revoke a building society’s authorisation if—

(a)the society has requested it to revoke its authorisation;

(b)the society has requestedthe central office to cancel its registration;

(c)the society has failed, when directed to do so under section 41, to make an application for the renewal of its authorisation within the period allowed under that section;

[F192(cc)it appears to the Commission that—

(i)the society is closely linked with any person; and

(ii)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society;]

(d)the society has, under sections 93 or 94 amalgamated with or transferred all its engagements to another building society; or

(e)the requisite initial step has been taken to wind up or dissolve the society.

(4)The Commission shall not revoke a society’s authorisation under [F193subsection (1) or (1A)] above except in accordance with the provisions of Part IV of Schedule 3 to this Act; and the other provisions of that Part shall also have effect in relation to revocation under this section or the imposition of conditions under section 42 instead of revocation under this section.

(5)Where a society’s authorisation is revoked under [F194subsection (1), (1A) or (3)] above the provisions of subsections (6), (7) and (8) below shall have effect.

(6)Subject to subsection (7) below, any obligation to make a payment to the society which, by virtue of section 9(1), the society is prohibited from accepting shall be wholly rescinded.

[F195(7)If, when a society’s authorisation is revoked, a member is under an obligation to make payments to the society—

(a)which represent instalments of the amount due in respect of a share in the society; and

(b)which, by virtue of section 9(1), the society is prohibited from accepting,

the obligation shall (subject to anything in the rules of the society or any agreement between the society and the member) be suspended in respect of each instalment for the period during which no authorisation is in force.

(7A)If, in a case falling within subsection (7) above, reauthorisation is granted—

(a)the first suspended instalment shall be payable on the first payment day after reauthorisation is granted; and

(b)a subsequent instalment shall be payable on each payment day after that until the amount due in respect of the share is paid in full.]

(8)It shall be the duty of the society to make reasonable arrangements for using the funds of the society to meet applcations by depositors with or holders of shares in the society (being applications made in accordance with the rules of the society) for repayment of the money deposited or subscribed by them.

(9)Where a society’s authorisation is revoked under this section, the Commission shall inform the central office of the fact and the date on which the revocation takes effect and the central office shall record that date in the public file of the society.

[F196(9A)The rules and prohibitions referred to in subsection (1A)(c) above include the rules of any recognised self-regulating organisation of which the society is a member and any prohibition imposed by virtue of those rules; and in subsection (1A)(d) above associate’ has the same meaning as in section 25(2) of the Consumer Credit Act 1974.]

(10)In this section “the requisite initial step", with reference to the winding up or dissolution of a building society, means the following—

(i)in the case of a winding up by the court, the making of the winding-up order;

(ii)in the case of a voluntary winding up, the passing of the resolution for voluntary winding up;

(iii)in the case of dissolution by consent of the members, the execution of the instrument of dissolution.

Textual Amendments

F187S. 43(1)(cc)(cd) substituted for word immediately following s. 43(1)(c) (9.6.1997 for certain purposes only and 1.12.1997 otherwise) by 1997 c. 32, s. 43, Sch. 7 para. 14(1); S.I. 1997/1427, art. 2(c); S.I. 1997/2668, art. 2, Sch. Pt. I(j)(l)(v)

F188S. 43(1A) inserted (1. 1. 1993) by S.I. 1992/3218, reg. 71(1)

F189S. 43(1A)(bb) inserted (1.7.1995) by S.I. 1995/1442, reg. 51(2)(a) (with transitional and transitory provisions in regs. 53(2), 54(2))

F190Words in s. 43(1A)(e) inserted (1.7.1995) by S.I. 1995/1442, reg. 51(2)(b) (with transitional and transitory provisions in regs. 53(2), 54(2))

F191Words in s. 43(1A)(f) inserted (1.7.1995) by S.I. 1995/1442, reg. 51(2)(c) (with transitional and transitory provisions in regs. 53(2), 54(2))

F192S. 43(3)(cc) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(3)

F193Words in s. 43(4) substituted (1. 1. 1993) by S.I. 1992/3218, reg. 71(2)

F194Words in s. 43(5) substituted (1. 1. 1993) by S.I. 1992/3218, reg. 71(3)

F196S. 43(9A) inserted (1. 1. 1993) by S.I. 1992/3218, reg. 71(4)

Modifications etc. (not altering text)

Marginal Citations

[F19743ARevocation: supplementary directions.U.K.

(1)The Commission may give a building society directions under this section—

(a)when giving it notice that the Commission proposes to revoke its authorisation;

(b)at any time after such a notice has been given to the society (whether before or after its authorisation is revoked);

(c)when giving the society a notice of revocation under subsection (3)(e) of section 43 where the requisite initial step (within the meaning of that section) is the passing of a resolution for voluntary winding up or the execution of an instrument of dissolution; or

(d)at any time after the society has requested the Commission to revoke its authorisation or the central office to cancel its registration.

(2)Directions under this section—

(a)shall be such as appear to the Commission to be desirable in the interests of the society’s shareholders or depositors, whether for the purpose of safeguarding its assets or otherwise; and

(b)may relate to any activities of the society, whether or not those for which an authorisation is required.

(3)Directions under this section may in particular—

(a)impose limitations on the issue of shares, the acceptance of deposits or the making of loans;

(b)require the society to take certain steps or to refrain from adopting or pursuing a particular course of action or to restrict the scope of its business in a particular way;

(c)require the society to take steps with regard to the conduct of the business of any connected undertaking of the society;

(d)require the removal of any director or other officer.

(4)No direction shall be given by virtue of paragraph (a) or (b) of subsection (1) above, and any direction given by virtue of either of those paragraphs shall cease to have effect, if—

(a)the Commission gives the building society notice that it is not proposing to take any further action pursuant to the notice mentioned in that paragraph; or

(b)the Commission’s decision to revoke the society’s authorisation is reversed on appeal.

(5)No direction shall be given by virtue of paragraph (d) of subsection (1) above, and any direction given by virtue of that paragraph shall cease to have effect, if the society’s request to the Commission to revoke its authorisation, or to the central office to cancel its registration, is withdrawn.

(6)No direction shall be given to a building society under this section after it has ceased to have any liability in respect of shares or deposits for which it had a liability at a time when it was authorised; and any such direction which is in force with respect to a building society shall cease to have effect when the society ceases to have any such liability.

(7)A building society which fails to comply with any requirement or contravenes any prohibition imposed on it by a direction under this section shall be guilty of an offence and liable—

(a)on conviction on indictment, to a fine;

(b)on summary conviction, to a fine not exceeding the statutory maximum.

(8)A contravention of a prohibition imposed under this section shall not invalidate any transaction or other act.]

Textual Amendments

[F19843BNotification and confirmation of supplementary directions.U.K.

(1)A direction under section 43A shall be given by notice in writing and may be varied by a further direction; and a direction may be revoked by the Commission by a notice in writing to the building society concerned.

(2)A direction under that section, except one varying a previous direction with the agreement of the building society concerned—

(a)shall state the reasons for which it is given and give particulars of the society’s rights under subsection (4) below and section 46; and

(b)without prejudice to section 43A(4), (5) and (6), shall cease to have effect at the end of the period of 28 days beginning with the day on which it is given unless before the end of that period it is confirmed by a further written notice given by the Commission to the society concerned.

(3)Where a direction requires the removal of a person as director or other officer of a building society, the Commission shall give that person a copy of the direction (together with a statement of his rights under subsection (4) below) and, if the direction is confirmed, a copy of the notice mentioned in subsection (2)(b) above.

(4)A building society to which a direction is given which requires confirmation under subsection (2) above and a person who is given a copy of it under subsection (3) above may, within the period of 14 days beginning with the day on which the direction is given, make written representations to the Commission; and the Commission shall take any such representations into account in deciding whether to confirm the direction.

(5)The Commission may omit from the copies given to a person under subsection (3) above any matter which does not relate to him.]

Textual Amendments

44 Reauthorisation. U.K.

(1)Where the authorisation of a building society has expired under section 41(7) or been revoked under section 43(1), or (3)(c), the Commission may, on an application duly made for the purpose, grant reauthorisation to the society under this section.

(2)Reauthorisation is authorisation to raise funds or accept deposits of money to the extent authorisation to do so is required by section 9(1).

(3)Reauthorisation under this section shall, if granted, be granted unconditionally or subject to conditions as provided by subsection (4) or (5) below.

[F199(3A)The Commission shall not grant reauthorisation to a society if it appears to the Commission that—

(a)the society is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society.]

(4)[F200Subject to subsection (3A) above,]the Commission shall grant unconditional reauthorisation to the building society if it is satisfied that—

(a)the society has qualifying capital of an amount which is not less than the prescribed minimum;

[F201(b)the society has adequate reserves and other capital resources;]

(c)the chairman of the board of directors and any executive directors, the chief executive, the secretary and the managers (if any) are each fit and proper persons to hold their respective offices in the society;

(d)the board of directors, with the chief executive and secretary, have the capacity and intention to direct the affairs of t he society in accordance with the criteria of prudent management and, in so far as those criteria fell to be satisfied before the date of the application, have secured that they are being satisfied; F202. . .

[F203(dd)each of the persons who, either alone or with any associate or associates, has a qualifying holding in the society is a fit and proper person to have such a holding; and]

(e)the investments of shareholders and depositors will be adequately protected without the imposition of conditions.

(5)[F200Subject to subsection (3A) above,]if the Commission is not satisfied of the matters specified in subsection (4) above in relation to the society it shall—

(a)if those matters [F204include either of] the matters specified in paragraphs (a) and (c), refuse to grant authorisation;

(b)in any other case, if itsatisfied that the imposition of conditions would secure the protection of the investments of shareholders and depositors, grant reauthorisation subject to such conditions to be compiled with by the society as the Commission thinks fit to impose to secure that purpose; or

(c)if not so satisfied, refuse to grant reauthorisation.

(6)Subsections (6) and (7) of section 9 apply as respects the imposition of conditions on reauthorisation as they apply as respects the imposition of conditions under that section.

(7)The provisions of Schedule 3 to this Act regulating—

(a)the making and determination of applications for authorisation,

(b)the furnishing of information or additional information in connection with such applications, and

(c)the imposition of conditions of authorisation,

apply in relation to reauthorisation under this section.

(8)Reauthorisation granted under this section shall be treated for the purposes of this Act as authorisation granted under section 9 and in particular subsection (9) of that section shall apply as if any conditions had been imposed under subsection (5) of that section.

(9)On granting reauthorisation under this section, the Commission shall inform the central office and the central office shall record that fact, and the date on which the reauthorisation was granted, in the public file of the society.

[F205(9A)Any expression used in this section to which a meaning is given by subsection (13) of section 9 has that meaning in this section; and for the purposes of this section subsection (13A) of that section shall apply as if the reference to subsection (4)(b) of that section were a reference to subsection (4)(c) of this section.]

[F206(10)In this section “adequate” means adequate having regard to the range and scale of the society’s business; and in this subsection—

(a)business” includes business the society proposes to carry on; and

(b)the reference to the society’s business includes, where it has connected undertakings, a reference to the business of those undertakings.]

Textual Amendments

F199S. 44(3A) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(4)

F200Words in s. 44(4)(5) inserted (18.7.1996) by S.I. 1996/1669, reg. 6(4)

F201S. 44(4)(b) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 15(1); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(vi)

F202Word following s. 44(4)(d) omitted (1. 1. 1993) by virtue of S.I. 1992/3218, reg. 72(1)

F203S. 44(4)(dd) inserted (1. 1. 1993) by S.I. 1992/3218, reg. 72(1)

F205S. 44(9A) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 15(3); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(vi)

F206S. 44(10) substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 43, 47(3), Sch. 7 para. 15(4); S.I. 1997/2668, art. 2, Sch. Pt. II(w)(z)(vi)

Modifications etc. (not altering text)

C49S. 44 applied by S.I. 1986/2168, art. 10(1)(c)(i)(5)(c)(i)

[[F207F20845The criteria of prudent management.U.K.

(1)If it appears to the Commission that there has been or is, on the part of a building society or its directors, a failure to satisfy any one or more of the following criteria of prudent management, it shall be entitled to assume for the purposes of its relevant prudential powers that the failure is such as to prejudice the security of the investments of shareholders or depositors.

(2)The prudential powers relevant for the purposes of this section are the Commission’s powers—

(a)under section 42, to impose conditions on a society’s authorisation,

(b)under section 42B, to direct a society to transfer all its engagements or its business, and

(c)under section 43, to revoke a society’s authorisation,

by reference to the expedience of the imposition, direction or revocation for the protection of the investments of shareholders or depositors.

(3)For the purposes of this Act, the criteria of prudent management are—

1.Compliance with the requirements imposed by sections 5(1), 6(1) and 7(1), and the restrictions on powers imposed by section 9A(1).

2.Maintenance of—

(a)adequate reserves and other capital resources; and

(b)own funds which amount to not less than the sum which, for the purposes of section 9, is the prescribed minimum in relation to qualifying capital.

3.Maintenance of adequate assets in liquid form.

4.Maintenance of a system for managing and containing risks to the net worth of the business, and risks to its net income, whether arising from fluctuations in interest or exchange rates or from other factors.

5.Maintenance of the requisite arrangements—

(a)for assessing the adequacy of securities for loans which are to be made or acquired by the society or subsidiary undertakings of the society, and are to be substantially secured on land; and

(b)for assessing the willingness and ability of borrowers to repay such loans.

6.Maintenance of the requisite accounting records and systems of control of business and of inspection and report.

7.Direction and management—

(a)by a sufficient number of persons who are fit and proper to be directors or, as the case may be, officers, in their respective positions,

(b)conducted by them with prudence and integrity.

8.Conduct of the business with adequate professional skills.

(4)Nothing in this section implies that it is improper for a determination for any purpose of the Commission’s relevant prudential powers to take account of other factors than the criteria in subsection (3) above.

(5)A failure to satisfy any of the first six criteria in subsection (3) above shall be treated, for the purposes of this section, as a failure on the part of a society’s directors prudently to conduct the affairs of the society.

(6)A failure on the part of the society to comply with the conditions to which its authorisation is subject shall be treated, for the purposes of this section, as a failure on the part of the society’s directors prudently to conduct the affairs of the society.

(7)The following provisions apply for the interpretation of the list of criteria in subsection (3) above in their application to a building society, that is to say—

  • adequate”, except with reference to liquidity, means adequate having regard to the range and scale of the society’s business;

  • adequate”, with reference to liquidity, means of such proportion and composition as will at all times enable the society to meet its liabilities as they arise and “liquid form”, in relation to assets, shall be construed accordingly;

  • business” includes business the society proposes to carry on and references to the business of the society include, where it has connected undertakings, references to the business of those undertakings;

  • requisite”, with reference to the arrangements for assessing the adequacy of securities, means such as may reasonably be expected to ensure—

    (i)

    that any person who assesses the adequacy of any security for a loan to be secured on land will have furnished to him a written report on the value of the land; and

    (ii)

    that any person who assesses the adequacy of any security, or reports on the value of any land, will be competent to perform that task, and will not be subject to any conflict of interest or potential conflict of interest;

  • requisite”, with reference to the arrangements for assessing the ability of borrowers to repay loans, means such as may reasonably be expected to ensure that any person who assesses the ability of any borrower to repay a loan—

    (i)

    will be competent to perform that task; and

    (ii)

    will not be subject to any conflict of interest or potential conflict of interest;

  • requisite”, with reference to accounting records and systems of control, means such as are required by section 71;

  • sufficient”, with reference to the number of directors and officers, means sufficient having regard to the range and scale of the society’s business.

(8)In determining for the purposes of the seventh criterion in subsection (3) above whether a person is a fit and proper person to hold any particular position, regard shall be had, in particular—

(a)to his probity;

(b)to his competence and soundness of judgement for fulfilling the responsibilities of that position;

(c)to the diligence with which he is fulfilling or likely to fulfil those responsibilities; and

(d)to whether the interests of shareholders or depositors of the society are, or are likely to be, in any way threatened by his holding that position.

(9)The Treasury may by order vary subsections (3) to (8) above by adding to or deleting from them any provision or by varying any provision contained in them; and an order under this subsection may make—

(a)different provisions for different descriptions of building societies; and

(b)such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient.

(10)The power to make an order under subsection (9) above is exercisable by statutory instrument; but no order shall be made under that subsection unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(11)Nothing in this section shall give rise to any claim against a building society or its directors, or afford a defence to any claim made by a building society.]]

Textual Amendments

F207Ss. 43-45A shall cease to have effect (17.8.2001 for specified purposes and otherwiseprosp.) by virtue of S.I. 2001/2617, arts. 2, 8, 13(1) Sch. 3 Pt. II para. 147 (with art. 13(3), Sch. 5) and repealed (prosp) by S.I. 2001/2617, arts. 2(b), 13(2), Sch. 4 (with art. 13(2), Sch. 5)

F208S. 45 substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 21, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(n)

[F68845The criteria of prudent management.U.K.

(1)If it appears to the Commission that there has been or is, on the part of a building society or its directors, a failure to satisfy any one or more of the following criteria of prudent management, it shall be entitled to assume for the purposes of its relevant prudential powers that the failure is such as to prejudice the security of the investments of shareholders or depositors.

(2)The prudential powers relevant for the purposes of this section are the Commission’s powers—

(a)under section 42, to impose conditions on a society’s authorisation,

(b)under section 42B, to direct a society to transfer all its engagements or its business, and

(c)under section 43, to revoke a society’s authorisation,

by reference to the expedience of the imposition, direction or revocation for the protection of the investments of shareholders or depositors.

(3)For the purposes of this Act, the criteria of prudent management are—

1.Compliance with the requirements imposed by sections 5(1), 6(1) and 7(1), and the restrictions on powers imposed by section 9A(1).

2.Maintenance of—

(a)adequate reserves and other capital resources; and

(b)own funds which amount to not less than the sum which, for the purposes of section 9, is the prescribed minimum in relation to qualifying capital.

3.Maintenance of adequate assets in liquid form.

4.Maintenance of a system for managing and containing risks to the net worth of the business, and risks to its net income, whether arising from fluctuations in interest or exchange rates or from other factors.

5.Maintenance of the requisite arrangements—

(a)for assessing the adequacy of securities for loans which are to be made or acquired by the society or subsidiary undertakings of the society, and are to be substantially secured on land; and

(b)for assessing the willingness and ability of borrowers to repay such loans.

6.Maintenance of the requisite accounting records and systems of control of business and of inspection and report.

7.Direction and management—

(a)by a sufficient number of persons who are fit and proper to be directors or, as the case may be, officers, in their respective positions,

(b)conducted by them with prudence and integrity.

8.Conduct of the business with adequate professional skills.

(4)Nothing in this section implies that it is improper for a determination for any purpose of the Commission’s relevant prudential powers to take account of other factors than the criteria in subsection (3) above.

(5)A failure to satisfy any of the first six criteria in subsection (3) above shall be treated, for the purposes of this section, as a failure on the part of a society’s directors prudently to conduct the affairs of the society.

(6)A failure on the part of the society to comply with the conditions to which its authorisation is subject shall be treated, for the purposes of this section, as a failure on the part of the society’s directors prudently to conduct the affairs of the society.

(7)The following provisions apply for the interpretation of the list of criteria in subsection (3) above in their application to a building society, that is to say—

  • adequate”, except with reference to liquidity, means adequate having regard to the range and scale of the society’s business;

  • adequate”, with reference to liquidity, means of such proportion and composition as will at all times enable the society to meet its liabilities as they arise and “liquid form”, in relation to assets, shall be construed accordingly;

  • business” includes business the society proposes to carry on and references to the business of the society include, where it has connected undertakings, references to the business of those undertakings;

  • requisite”, with reference to the arrangements for assessing the adequacy of securities, means such as may reasonably be expected to ensure—

    (i)

    that any person who assesses the adequacy of any security for a loan to be secured on land will have furnished to him a written report on the value of the land; and

    (ii)

    that any person who assesses the adequacy of any security, or reports on the value of any land, will be competent to perform that task, and will not be subject to any conflict of interest or potential conflict of interest;

  • requisite”, with reference to the arrangements for assessing the ability of borrowers to repay loans, means such as may reasonably be expected to ensure that any person who assesses the ability of any borrower to repay a loan—

    (i)

    will be competent to perform that task; and

    (ii)

    will not be subject to any conflict of interest or potential conflict of interest;

  • requisite”, with reference to accounting records and systems of control, means such as are required by section 71;

  • sufficient”, with reference to the number of directors and officers, means sufficient having regard to the range and scale of the society’s business.

(8)In determining for the purposes of the seventh criterion in subsection (3) above whether a person is a fit and proper person to hold any particular position, regard shall be had, in particular—

(a)to his probity;

(b)to his competence and soundness of judgement for fulfilling the responsibilities of that position;

(c)to the diligence with which he is fulfilling or likely to fulfil those responsibilities; and

(d)to whether the interests of shareholders or depositors of the society are, or are likely to be, in any way threatened by his holding that position.

(9)The Treasury may by order vary subsections (3) to (8) above by adding to or deleting from them any provision or by varying any provision contained in them; and an order under this subsection may make—

(a)different provisions for different descriptions of building societies; and

(b)such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient.

(10)The power to make an order under subsection (9) above is exercisable by statutory instrument; but no order shall be made under that subsection unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(11)Nothing in this section shall give rise to any claim against a building society or its directors, or afford a defence to any claim made by a building society.]

Textual Amendments

F688S. 45 substituted (1.12.1997 in specified cases and for specified purposes and otherwise in accordance with art. 2(2)(3)(5) of S.I. 1997/2668) by 1997 c. 32, ss. 21, 47(3); S.I. 1997/2668, art. 2, Sch. Pt. II(n)

[F209General functions of Commission]U.K.

Textual Amendments

F209S. 45AA and cross-heading inserted (1.12.1997) by 1997 c. 32, s. 22; S.I. 1997/2668, art. 2, Sch. Pt. I(d)

[F21045AAStatements of principles etc. by Commission.U.K.

(1)The Commission shall, as soon as practicable after the coming into force of this section, publish in such manner and in such detail as it thinks appropriate a statement of the principles in accordance with which it is acting or proposing to act—

(a)in exercising its powers of control; and

(b)in interpreting the criteria of prudent management.

(2)If in the course of a financial year the Commission makes a material change in the principles in accordance with which it is acting or proposing to act as mentioned in subsection (1) above, the Commission shall include in the report made by it for that year under section 4 a statement of the change in such detail as it thinks appropriate.

(3)The Commission may, at any time, publish in such manner and in such detail as it thinks appropriate, either or both of the following, namely—

(a)a statement of the principles in accordance with which it is acting or proposing to act as mentioned in subsection (1) above; and

(b)a statement containing additional guidance as to the exercise of its powers of control and its interpretation of the criteria of prudent management.

(4)In this section “powers of control”, in relation to the Commission, means—

(a)the powers conferred on it by sections 36, 36A and 37; and

(b)its powers to grant or revoke an authorisation, to impose conditions on an authorisation or to direct the making of an application under section 41.]

Textual Amendments

F210S. 45AA and cross-heading inserted (1.12.1997) by 1997 c. 32, s. 22; S.I. 1997/2668, art. 2, Sch. Pt. I(d)

[45AF211Exercise of powers on information from supervisory authority.U.K.

(1)This section applies where, in the case of a building society for which an authorisation is in force, the Commission is informed by a supervisory authority in another member State that the society is failing to comply with an obligation imposed by or under any rule of law in force in that State for purposes connected with the implementation of the Second Council Directive.

(2)The Commission shall as soon as practicable send a copy of the information received by it to every other authority which it knows is a connected UK authority.

(3)The Commission shall also—

(a)consider whether to exercise its powers—

(i)under section 42, to impose conditions on the society’s authorisation, or

(ii)under section 43, to revoke the society’s authorisation; and

(b)notify its decision, and any action which it has taken or intends to take, to the supervisory authority and to every other authority which it knows is a connected UK authority.]

Textual Amendments

F211S. 45A inserted (1. 1. 1993) by S.I. 1992/3218, reg.74

Modifications etc. (not altering text)

AppealsU.K.

Valid from 17/08/2001

[F21246A Notices, hearings and appeals.U.K.

(1)If the Authority proposes—

(a)to give a direction to a society under section 36(3), (5), (6), (7) or (10), or

(b)to give a direction to a society under section 42B(1), other than a direction varying a previous direction with the agreement of the society concerned,

it must give the society a warning notice.

(2)The warning notice must set out the terms of the direction which the Authority proposes to give.

(3)If the Authority decides—

(a)