Industry response

Our response to the FSA's QCP no 29, CP11/11, specifically chapter 4 - liquidity and chapter 9 - general provisions

Introduction

1. The Building Societies Association represents mutual lenders and deposit takers in the UK including all 48 UK building societies. Mutual lenders and deposit takers have total assets of over £365 billion and, together with their subsidiaries, hold residential mortgages of almost £235 billion, 19% of the total outstanding in the UK. They hold more than £245 billion of retail deposits, accounting for 22% of all such deposits in the UK. Mutual deposit takers account for about 36% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.

Chapter 2 - liquidity

2. This chapter proposes three changes of interest to building societies. We address each change in turn.

3. The first is to correct an error in the rules in SUP 16.12 concerning reporting currency. The proposed rule change will instruct firms to report the data item only in the currencies named in FSA 052 so that liabilities in sterling are reported in sterling, those in US dollars are reported in US dollars and those in euros reported in euros.

4. We have no objections in principle to this change and look forward to seeing the revised accompanying guidance.

5. Chapter 4 also contains a revised definition of a low frequency reporting firm. Currently, the threshold to qualify as a monthly reporter for data items FSA 047, FSA 048 and FSA 052 is a balance sheet size of £1 billion. The FSA is proposing to raise the threshold to a balance sheet size of £5 billion. We consider this to be a sensible move and therefore support the proposal.

6. The third and final proposal of interest to building societies in chapter 4 concerns corrections and minor amendments to the simplified ILAS regime. Chapter 4.21 lists the three points, the most significant of these is the proposal to remove the word "retail" from the definition of a firm's credit pipeline commitment. This is because simplified firms can have “retail and wholesale” pipeline commitments.

7. Some societies have questioned the term “wholesale” with regard to the mortgage pipeline, saying that they do not recognise the term in this context. The FSA has since explained that it means “residential and commercial”. In this case, we suggest the FSA uses “residential and commercial” rather than “wholesale” in any future communications on this matter to reduce the risk of confusion. Building societies on the simplified ILAS approach, we understand, already include commercial mortgages in their pipeline commitment figure.

Chapter 9 – general provisions on reporting

8. Of interest to building societies is the proposal to remove the rule stating that a written report – ie outside GABRIEL - must be a firm’s “usual supervisory contact”. Instead, the FSA intends to require all such written reports to be delivered to the central reporting team. There is no question asked on this proposal in the consultation paper but we consider it is important and have therefore addressed it.

9. The goal is to help the FSA improve the enforcement of reporting deadlines. The FSA explains: “A simplified method of collecting regulatory reports should allow the central reporting team to monitor submissions from all firms, facilitating the consistent application of the rule that allows us to levy an administrative fee on firms who fail to submit their reports on time.”

10. We would like clarification how the change will work for PRA-scope firms such as building societies. We ask as the proposed change seems to run counter to the new approach outlined in the PRA launch document of 19 May 2011. Paragraph 73 states: “Firms will be expected to have wide data sets, beyond what is regularly submitted, available for PRA supervisors to call upon at short notice, if judged necessary for the assessment of risk or as a ‘spot check’.” This suggests that a supervisor might request a written report to be sent to him/herself.

11. We consider the best person to enforce the reporting deadline is the supervisor, that is part and parcel of his/ her job. There may be a good reason why the firm has not submitted the report on time – for example, the supervisor has requested additional detail. This kind of development will not be known to a central reporting team.

12. In summary, we see this proposal as loaded against the firm and inconsistent with the future approach of the PRA. If the FSA is intent on fining firms, it should place the responsibility on the shoulders of the supervisor.

FSA quarterly consultation no 29, CP 11/11