The Building Societies Association is pleased to comment on the PRA’s proposals in CP 8/13. We represent mutual lenders and deposit takers in the UK including all 45 UK building societies. Mutual lenders and deposit takers have total assets of nearly £380 billion and, together with their subsidiaries, hold residential mortgages of over £250 billion, 20% of the total outstanding in the UK. They hold nearly £260 billion of retail deposits, accounting for 21% of all such deposits in the UK. Mutual deposit takers account for 30% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
Chapter 7 - CRD 4 consequential and minor amendments
We welcome the move to allow those FINREP firms with non-31 December year ends to be able report FINREP data according to their accounting year end and notify the PRA if they do so.
Our understanding is that the PRA regards those regulatory consolidated groups that use IFRS are required to report FINREP. We consider the PRA should also refer explicitly paragraph 4 of Article 99 of the Capital Requirements Directive. This paragraph suggests national competent authorities may determine that smaller non-systemic institutions that use international accounting standards/ IFRS need not report FINREP. In addition, the executive summary of the draft European Banking Authority ITS for supervisory reporting amplifies this point: “The most burdensome data points do not have to be reported by all institutions but only by those institutions which have significant risk exposures or significant activities.”
There are five building societies that are regulatory consolidated groups that also use IFRS but only one can be categorised as systemic.
The cost to building societies of installing FINREP systems and the associated review and governance processes is disproportionately high and will have a significant impact on their financial position. It is important not to underestimate the cumulative affect of recent regulatory reporting initiatives. We asked our larger affected societies what they estimated the direct implementation costs to be. While these seem low – under 1% of profits – the indirect costs multiplied this figure several times.
The data building societies will provide, on the other hand, will have absolutely no impact on assessing systemic risks to the financial sector or the real economy. And the PRA has a wide range of other sources of information from which it can form a comprehensive view of the individual institution’s risk profile.
Without a determination by the PRA, some local and regional mutuals that do not pose systemic risks to the financial sector could be required to report FINREP: global investment banks owned by holding companies, for example, would not be. Mutuals could end up producing financial data that is inconsequential on the European or even national stage but costly to the institutions affected.
The PRA proposes to require firms to notify their supervisor if they believe they are subject to FINREP - and to inform the same when they cease to report FINREP. This is a departure for regulators – firms have in the main been told what they should report. This change could in theory lead to some non-systemic IFRS regulatory consolidated groups taking the view that under the CRR they were not subject to FINREP.
As the PRA is aware, we have recently posted a question on the issue on the EBA Q&A portal.
Chapter 9 - Initial capital exemption for small credit institutions
We welcome the move to greater competition in domestic banking services by setting a lower amount of initial capital for certain small credit institutions ("small specialist banks"), €1 million or £1 million, whichever is higher, rather than €5 million. Furthermore, we agree with the conditions attached to these SSBs. They clearly should be subject to regulation, but proportionate to the risk they pose to the economy.