Policy
Response
Disclosure of liquidity support - response to the FSA's CP 08/ 13
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Contact: Andrea Jeffries Date: 29 Sep 2008 |
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Introduction
1. The Building Societies Association (BSA) represents all 59 building societies in the United Kingdom. Building societies have total assets of over £360 billion and, together with their subsidiaries, hold residential mortgages of £250 billion, more than 20% of the total outstanding in the UK. Societies hold about £230 billion of retail deposits, accounting for more than 20% of all such deposits in the UK. Building societies also account for about 38% of all cash ISA balances. Building societies employ over 51,500 full and part-time staff and operate through more than 2,000 branches.
Summary
2. The Building Societies Association supports the proposal to allow, under certain circumstances, financial institutions to delay public disclosure of the fact that they are in receipt of liquidity support from the Bank of England. We believe that such a move is particularly appropriate, and welcome, given current market conditions.
Disclosure of liquidity support - FSA CP 08/ 13
Background
3. Under the EU's Market Abuse Directive, from which the Financial Services Authority’s disclosure rules are derived, firms admitted to trading on a regulated market (this covers building societies with PIBS) are obliged to publicly disclose inside information to the market. The directive allows, in certain specific circumstances, the disclosure of inside information to be delayed.
4. The FSA is proposing that a financial institution admitted to trading on a regulated market that is in receipt of liquidity support from the Bank of England, or another central bank, may be able to delay the public disclosure of this fact.
Detail and application to building societies
5. The FSA's consultation paper CP 08/13 makes clear that a financial institution in receipt of liquidity support from a central bank may have a legitimate interest to delay the disclosure of such support. The delay would be justified on the grounds that immediate disclosure could, by leading to a loss of confidence among consumers, exacerbate the existing liquidity problems and cause a threat to the solvency of the financial institution. This paper proposes an amendment to chapter 2.5 of the Disclosure Rules and Transparency Rules sourcebook (DTR 2.5). The FSA has confirmed that DTR 2 does apply to building societies and all other issuers
6. The proposal would not grant a financial institution an unconditional or indefinite delay to disclose the receipt of liquidity support. Under certain circumstances, immediate disclosure would still be required. The Market Abuse Directive tests of "ensuring confidentiality" and "not misleading" would still need to be met. Indeed, as the Directive currently stands, there is no way the FSA can disapply them.
7. There appears to be no explicit definition of what constitutes a “delay” for liquidity support disclosure purposes . If such a definition is to be provided, we suggest that for building societies it should be that liquidity support disclosure is included in the next financial report.
Our view
8. We note in chapter 2.14 of this CP the support respondents to the recent tripartite consultation on financial stability and depositor protection gave to the delay in disclosure of liquidity support. These respondents felt that was vital to ensure financial stability. We also note in chapter 2.16 that other respondents to the tripartite consultation opposed such delay in disclosure on grounds of transparency.
9. While we understand the fears of those for whom transparency of markets is supreme, it is our view that financial stability concerns far outweigh those of transparency, particularly in these stressed times. The events of this month (September 2008) underline this argument – building societies are far less affected by transparency concerns than, for example, banks. But for building societies, financial stability and the protection of their members and depositors is paramount so we seek the maximum flexibility in the disclosure of liquidity support.
