FSA will not restrict societies’ mortgage products
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The Financial Services Authority says it will not restrict societies in terms of what mortgage products they want to offer or what business models they choose.
The FSA has today introduced additional handbook guidance to ensure that building societies diversifying from traditional business models have the risk management systems and skills necessary to operate safely.
In its guidance it says: “We confirm that societies are free to select any business model, and offer any mortgage products that their senior management choose; as long as they implement appropriate risk management processes to manage the associated credit, interest rate, basis and treasury risks.”
The FSA says it expects building societies to re-examine their risk management and business models in the areas of liquidity, wholesale funding and lending to ensure that they are aligned.
Societies that demonstrate appropriate risk management and skills will have complete flexibility to run their own business within the statutory limits set out by the Building Societies Act.
Those that cannot, will be steered to either introduce more appropriate risk management or to move to a simpler business model so that they only carry out activities they can safely undertake.
Recent experience has shown that some building societies diversified without having the necessary skills and systems to manage the risks they were undertaking.
These changes will come into effect on April 1 2010 and building societies will have until September 30 to identify any possible mismatches between their risk management and their business model and agree with the FSA what actions, if any, are needed to address these.
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Readers' comments (1)
Gray Haired Underwriter | 26 Mar 2010 4:48 pm
I've just been having a preliminary read of the FSAs Building Society Sourcebook and I think that the above article might be just a tad more optimistic than the sourcebook. As I read matters it looks as though the vast majority of Societies are going to be be very restricted in what aspects of their books can be high LTV prime and as to how much BTL they will be able to hold on their mortgage book.
Perhaps the publication of the limits within the sourcebook would cause most brokers to have a sharp intake of breath.
The restrictions will also make it much harder for Societies to be able to offer competitive prime rates by obtaining slightly better margins on other products.
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