In a landmark move for the UK's financial sector, regulators have announced a sweeping deregulation package designed to turbocharge the growth of building societies. The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have jointly proposed to rip up a contested rulebook that has long limited the activities of mutual lenders.
Rulebook Scrapped with Immediate Effect
The centrepiece of the initiative is the immediate removal of the Building Societies Sourcebook from the PRA rulebook. This rulebook had imposed specific constraints on building societies that their high-street bank rivals did not face, particularly around lending volumes and Treasury activities. Critics, including the Building Societies Association (BSA), had labelled the rules as "badly calibrated and anti-competitive."
Ruth Doubleday, head of prudential risk at the BSA, had previously argued the sourcebook created "various unintended consequences" and unfairly capped certain types of lending, such as fixed-rate mortgages. The abolition of these limits is expected to provide a significant tailwind for the mutual sector, allowing societies greater flexibility to compete.
A New Push for Mutual Sector Expansion
The watchdogs are not stopping at simply removing old rules. They have also pledged to accelerate the approval process for new building societies, cutting the application time from 15 days to just ten. Furthermore, a new 'Mutual Societies Development Unit' will be established to act as a central support hub for firms navigating the regulatory landscape.
Sam Woods, chief executive of the PRA and a deputy governor at the Bank of England, emphasised the importance of the move, stating: "Mutuals are a vital part of our financial system. Today’s report examines how the financial mutuals sector is growing, and what we can do to help it thrive in the period ahead." The reforms align with the Treasury's stated mission to double the size of the mutuals sector, a goal praised by City minister Lucy Rigby.
Challenges on the Horizon for Savers and Lenders
This regulatory boost comes against a challenging backdrop for building societies, following recent changes to cash ISAs announced in the Autumn Budget. Chancellor Rachel Reeves confirmed the annual allowance for cash ISAs will be cut from £20,000 to £12,000 from April 2027.
The sector reacted with dismay, arguing that cash ISAs are a crucial source of funding for mortgages. Reducing these savings inflows could potentially make home loans more expensive. Harriet Guevara, chief savings officer at Nottingham Building Society, warned the cut sends a "difficult message to households" trying to save, describing it as a "sucker punch for savers."
The combined effect of deregulation and ISA changes sets the stage for a pivotal period for building societies. While they gain new operational freedoms to grow, they must also navigate a potentially more difficult funding environment, balancing the needs of their member-owners who both save and borrow.
