Don’t let reform get out of hand, pleads head of UK building societies

News - Banking

Written by Ray Clancy

Friday, 12 November 2010 11:32

The vast programme of regulatory reform of the finance industry underway in the UK must not be allowed to get out of proportion, an industry chief is warning.

Speaking at the Building Societies Association (BSA) annual lunch today, David Webster, chairman of the BSA, raised concern about the reforms that will affect almost every area of building society operations and questioned whether a point of regulatory overkill has been reached.

‘The financial services market has faced huge changes over the last few years, not least those markets in which BSA members operate. Net advances in the residential mortgage market have fallen from an annual figure of around £110 billion in the four or five years running up to 2008 to perhaps £10 billion this year. Few UK industries will have experienced such a precipitous decline in activity,’ he explained.

At the same time mutuals have introduce a wide range of changes. ‘We’re open for business, we’re getting more efficient, and we’re maintaining very high service and lending standards,’ he told the audience.

And he highlighted the positive aspects, saying that building societies bring diversity and choice to the UK financial services landscape.

‘I cannot ignore the vast programme of regulatory change occurring at the moment that affects, or will affect almost every area of our business. We’re having the Mortgage Market Review, and we’re going to have the European Union’s Responsible Lending policy. More onerous and expensive liquidity arrangements are already with us and we’re having capital requirements increased and more tightly defined,’ he explained.

‘And we face a complete overhaul of the regulatory systems as the Financial Services Authority disappears and is replaced by a new system with the Bank of England at its heart. Given the huge changes in the markets we have already seen, does the regulatory revolution represent overkill?

‘There were certainly examples of irrational exuberance on the part of institutions in the run up to 2007, but there are also currently examples of irrational pessimism on the part of regulators as they seek to address the problems of recent years in what might be far too restrictive a manner, given the need to create the conditions for continued economic recovery,’ he said.

He concluded his address with a plea to Government to ‘build into the new processes a proper respect for, and appreciation of mutuals. We need a proper appreciation of the mutual need for a capital instrument that would enable them to boost their capital ratios as necessary and we need to ensure that the new regulatory structure does not disadvantage mutuals through high costs or restrictions not placed on others.’