FSA consults on additional guidance for building societies

Societies that demonstrate the necessary risk management systems and skills will have complete flexibility to run their business within the statutory limits set by the Building Societies Act. Those which cannot, the FSA will steer to a simpler business model category and activities they can safely undertake.

Jon Pain, the FSA’s retail managing director, said:

"Our approach is very simple; the more diversification, the higher the level of management skills and systems and controls the FSA will demand from the firm.  This interventionist approach is entirely consistent with our heightened supervision and is designed to challenge and encourage a strong and vibrant building society sector for the future.

"Building societies will still be free to innovate and diversify, but not beyond the limits of their risk management skills."

Today’s consultation paper forms part of the FSA’s intensive supervisory regime for building societies, where supervisors are judging the sustainability of business models and assessing senior management skills.

Building societies have statutory freedoms to diversify and innovate, but recent experience has shown some building societies diversified without having the requisite skills and systems to manage the risks.

The guidance outlined today would not limit those freedoms to diversify, but would clearly set out the skills and controls buildings societies need to have to manage more complex business models.

The consultation will close on 5 September 2009.

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