The second day at the BSA virtual Conference was themed 'Strong and simple - resilience and innovation serving mutuality' with Keynote speeches from Sam Woods, PRA, Poppy Trowbridge and Target Group. There was also an interesting panel session on sustainable mutuality.
The highlights from the day are below:
Keynote: Mutual Interests
Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive of the Prudential Regulation Authority, Bank of England
In his speech Mutual interests, Sam Woods covered several themes of great interest to the audience.
He started with a quick overview of how the building society sector, with its 25 million individual members, played an important role in bridging to the other side of the pandemic crisis. With strong capital - an average CET 1 ratio of 26% - we provided more than £66 billion of new loans in 2020 and offered a peak of more than 300,000 payment deferrals: all this while adapting quickly to lockdown, and maintaining branch services.
Sam then moved on to the much awaited theme of strong and simple, continuing from his initial ground-breaking speech last November and the publication of the Bank’s Discussion Paper (DP 1/21) last week. Sam explained that the PRA decided first to seek views through an open discussion paper rather than just consult on one single proposal.
He then took us through the three principal trade-offs in designing a strong and simple framework. First, scope - what are the right size thresholds (below systemic), and how to avoid barriers to growth? While a graduated approach may be the ideal, we agree with Sam's suggestion that for the first step the PRA should start with is the smallest firms that would benefit most from simplification.
The second trade-off is the approach to simplification - streamlined or focused? And thirdly, the calibration - basically, the simpler the stronger. At the BSA we have advocated just such a “simplicity premium” as a good potential trade-off for most of our members.
Sam went on to talk about the leverage and MREL reviews, but asked us to watch this space- no decisions made yet, but more information expected over the summer.
Finally Sam spoke about mortgage risk weights, and the PRA’s proposals in the Bank’s Consultation Paper (CP 14/20) for individual and aggregate risk weight floors for UK residential mortgages. While again no decision yet, he made four points:
- a strong prudential case for some flooring of modelled risk weights
- this should also benefit competition
- it is not clear yet whether both floors are needed, and what is the right calibration
- timelines for the final policy should have regard to the economic and operating environment.
Overall BSA members can be well pleased with the content of this speech and some of the following Q&A: we are prudentially strong, mostly due to benefit from a more proportionate regime, and almost totally insulated from post-Brexit problems. What's not to like?
Panel session: Sustainable Mutuality
Julian Wells, Director, Whitecap Consulting Limited; Julie-Ann Haines, Chief Executive, Principality Building Society; Helene Panzarino, Associate Director, LIBF Digital Banking and Finance Centre; Rose Marley, Chief Executive, Co-operatives UK
After a run through the recently published Whitecap report, the panel explored the content further. Technology was, unsurprisingly, the golden thread throughout, with collaboration and purpose-driven strategic changes also discussed.
The world was already entering ‘Industrial revolution 4.0’ pre-pandemic: normalising AR, VR, AI*, and the Internet of Things to name but a few. Looking ahead, the so-called “Roaring 20s” to come are set to be underpinned by technology: Increased 5G usage, increased open source usage and AI performing at human level which is expected to be the norm by 2030.
In addition, the pandemic accelerated the pace at which people adopted banking technology. Research suggests a 32% decline in branch visits, altering the operational models of many building societies.
How can our sector adapt? Collaboration is key. The panel acknowledged that building societies readily collaborate with Fintechs, recognising them to be in a much better position to work with financial institutions than they were a few years ago.
However, technology is only part of the story, a delivery vehicle. Mutuality is what makes building societies different, and digital strategies must complement these mutual values.
The pandemic exposed societal inequalities and changed how we live, work and consume. People are more conscious of who they do business with, and how. There is a much bigger spotlight on purpose. Top-down cultures of old are being replaced with collaborative environments. There is a real opportunity for building societies to thrive in this space if their strategies develop in line with the change. Once again, collaboration was identified as critical to test concepts, share learning and drive societies forward.
In order to adapt and thrive, the overarching message from the panel was for societies to carefully curate the needs of their members, and collaborate with vendors to deliver these needs in a way that members want - a balancing act of protecting the magic of mutuality in an environment of digital surge.
*AR - Augmented reality; VR - Virtual reality; AI - Artificial intelligence
Keynote: The political outlook - tailwinds and tornados
Poppy Trowbridge, Former broadcaster and columnist for The Times and the Guardian. Special adviser and Director of Communications to the Chancellor of the Exchequer, Philip Hammond from 2016 to July 2019
Poppy Trowbridge spoke about the political tailwinds and tornados the Government has faced since it was elected. Since then, nothing has gone to plan for the Johnson Government, with the Covid-19 pandemic starting shortly afterwards.
She identified three changes Covid-19 has brought to UK politics. Firstly, the pace is faster. The Government changed how it works by removing inertia. Incredibly, the Treasury has produced over a dozen fiscal events in the past year as it took on the role of proxy employers for thousands of people.
Secondly, the public sector has sped up its delivery. It has had to develop new services to respond to the pandemic. The Government is playing a larger role in people’s lives and is reinventing how it serves the public.
Thirdly, Covid-19 has tested devolution. Poppy said she believed devolution to be strong, but questioned whether regions have the powers and resources to tackle the pandemic. Going forward, the Government will have to meet higher standards, but will only be able to deliver at a more local and regional level.
Poppy observed that the Downing Street daily briefings had put the Government in more direct communication with the electorate. This intimacy will remain and policy may well be more responsive as a result.
Before the pandemic levelling-up was the key priority and the pandemic has shown the inequality in the UK. The Government must use the tailwinds of the economic recovery to address this.
Looking ahead, there will likely be a Budget in the autumn and eventually the Government will have to articulate what size they want the State to be. Brexit is still on the agenda, with grace periods expiring and legal actions launched. But the pandemic has shut down the global Britain strategy.
When elected the Conservatives had clear domestic policies in their manifesto and they will now need to get back to delivering on these, such as building more homes.
As a result of all this change, Poppy asked whether there would be a greater desire to hold Government to account for decisions by a more politically engaged electorate.
Keynote: The future of mutuality
Mark Gilliver, Director, Target Group
In his keynote at the end of Day 2, Mark Gilliver from Target Group continued the theme of digital innovation from the earlier Sustainable Mutuality panel discussion.
He considered how technology will revolutionise the way we all engage with financial services and where building societies could build on their strengths as regional and mutual organisations in the future.
In his introduction, he made the distinction between on the one hand merely digitising processes - where firms automate existing processes - and on the other digitalisation - where firms completely re-imagine processes using new technology.
He argued that market forces would drive digitalisation and the rapid evolution of interconnected ecosystems of products, with many participants servicing customers.
The current one to one relationship model of customer and product provider, will evolve to a one to many provider relationship, of advice on tap, instant decisions and consumers engaging with financial services brands at the digital platform of their choice.
In these future financial services ecosystems, he identified four roles - utility, manufacturer, platform and distributor.
He argued that the proposition and values of building societies will continue to be highly relevant in the future, but consideration needs to be given in the context of these future ecosystems.
To that end, Target itself was redeveloping its propositions in preparation for this future, with a Platform as a Service proposition. The launch of its The Mortgage Hub re-imagined the mortgage process, with integrations from third parties in terms of digital ID, Open Banking and property and valuation data.
The presentation prompted a number of questions about how building societies could retain customer loyalty as a product provider with such an impersonal delivery.
In response he countered that a middle way, augmenting traditional services in branch and in person could be an increasingly unique proposition as banks move away from the high street.
Day 3 begins tomorrow at 13:05 with a welcome from the new BSA Chair, followed by keynote sessions with Charles Randell CBE, Chair of the Financial Conduct Authority and BSA Chief Executive, Robin Fieth. The full programme can be found here. We look forward to you joining us then!
Thanks to our headline sponsors DXC Technology and Temenos; nCino; Salesforce and Target Group and our other sponsors Sopra Banking; TCS BaNCS and all of our exhibitors.