Policy
Prudential and Financial Regulation
Building societies, along with other financial institutions, are bound by regulations and requirements that aim to uphold the soundness and integrity of the financial system.
Most modern economies acknowledge that capital adequacy regulation plays a crucial role in the long-term financing and solvency of building societies (and banks), especially in helping them to avoid bankruptcies and the catastrophic effects they have on society. Capital or net worth serves as a buffer against losses and hence systemic failure.
Internationally, the Bank for International Settlement's Basel Committee on Banking Supervision influences each country's capital requirements. In 1988, the committee introduced a capital measurement system, commonly referred to as the Basel Capital Accord.
The latest capital requirements framework is known both as Basel II and the Capital Requirements Directive, commonly shortened to CRD. It took effect in the UK on 1 January 2007. Its implementation in this country is overseen by the Financial Services Authority.
The BSA works closely with the FSA to ensure that building societies' interests are represented fairly and openly and that any changes do not affect them disproportionately.
Bank for International Settlements - work on Basel II
Implementing Basel II/ the CRD
Since 2007, the BSA has been working closely with HM Treasury on proposed changes to the Capital Requirements Directive ("CRD 2"), specifically on the three areas that affect societies most: large exposures, hybrid capital instruments and securitisation. Changes have been agreed in the European Parliament with a revised Directive expected shortly. After that, the FSA will issue a consultation paper on how it believes it should implement these changes. Further up the line are CRD 3, 4 5 and 6, not all of which will affect building societies.
