Building Societies Act 1986 (Amendment) Act 2024

Policy background

Introduction to building societies and the existing legislation

1. Building societies are providers of mortgage and savings products, mutually owned by their members (the depositors/borrowers). The 42 building societies in the UK make a valuable contribution to the UK financial services industry. According to the latest Building Societies Association (BSA) data, building societies collectively serve over 25.8 million members and hold over £352 Action of mortgage assets and £313 Action of savings from individuals 1 .
2. The Building Societies Act 1986 sets out building societies’ distinctive model and other legal requirements. Under this Act, building societies are required to obtain at least 50% of their funding from individual retail (member) deposits, ensuring the members are the primary owners ("the funding limit calculation"). This is a key feature of the building society’s unique ownership model. Whilst the 1986 Act broadly remains fit for purpose, there is interest and rationale in making further updates to the 1986 Act to allow building societies to compete on a more level playing field with banks operating as Companies Act 2006 companies, promoting competition within the financial services sector.
3. Additionally, the separate legal frameworks for companies and building societies have not always been updated at the same time.
4. The policy aim is therefore to modernise the legislation to better align with the framework under which companies operate, while still maintaining the building society mutual ownership model.

Government consultation

1. Following from engagement with the building society sector, the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA), on 6 December 2021, the government launched a consultation on several amendments to the 1986 Act 2 . The consultation proposed excluding some sources of funding from the building societies wholesale funding limit calculation and updating building society constitutional and corporate governance requirements in line with modernisations made to company law by the Companies Act 2006.
2. The Government published a response to this consultation as part of the Edinburgh Reforms in December 2022 3 . All respondents supported the range of proposals outlined in the consultation 4 .

Policy objective

1. This Act amends the 1986 Act and also provide HM Treasury with the powers to make specific secondary legislation.
2. It amends section 7 of the 1986 Act to enable the exclusion of the following sources of funding (as further specified by the Treasury in regulations) from the building society wholesale funding limit calculation: Bank of England liquidity insurance facilities, debt instruments raised to meet MREL requirements, and sums received under a repurchase agreement with a view to complying with a specified PRA rule. Without reducing financial stability or diluting the unique ownership model of building societies, this Act enables building societies to raise additional wholesale capital, which they can use to grow and compete with retail banks on a level footing, and which societies may then put towards supporting their members.
3. The Act also amends the 1986 Act to explicitly allow the option of real-time virtual member participation in building societies’ meetings, and provides HM Treasury with the powers to make secondary legislation to further align the constitutional provisions in Part 2 of the 1986 Act concerning common seals and the execution of documents with modifications to company law. Both of these changes help modernise the 1986 Act, providing building societies with the same modern governance flexibilities as companies and help to reduce some burdens on the sector should they choose to adopt these changes.