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Wheatley warns building societies over risk

Financial Conduct Authority chief executive designate Martin Wheatley has warned building societies not to assume a mutual structure means there is less risk of consumer detriment.

Speaking at the Building Societies Association’s annual conference in Manchester yesterday, Wheatley (pictured) said it would be a mistake for building societies to believe they are immune from the problems faced by other parts of  the financial services sector.

He said: “Many of you say being a mutual allows you to focus on your members’ needs rather than shareholders. This may be true, but I would like to sound a note of caution.

“The message is, for your governing boards in particular, do not rest on your laurels. Do not assume that being a mutual assures you the luxury of knowing the business is getting the best for its customers.”

Wheatley cited the example of Norwich & Peterborough Building Society, which was fined £1.4m in April 2011 for misselling Keydata products to 3,200 customers. N&P also had to pay out around £51m in redress.

He said: “I know this case is an extreme example, but it is a real one. And I know many of your do not even offer your own investment advice, but this shows what can happen when societies, and in particular their management and boards, take their eye off the ball.”

Wheatley said in a low interest rate environment building societies need to understand the risks of moving into niche areas.

He said: “I know many of you have seen how others got their fingers burnt by diversifying in the boom years and have learned from those mistakes.

“But as a regulator I need to be alive to potential issues out there. I need to make sure that I am prepared for what may happen, and I want you and your boards to do the same.”

On the issue of the mortgage market review, Wheatley said the regulator was working to assess the scale of the problem with interest-only mortgages, where many loans are due to be repaid but the borrower does not have any means of paying their mortgage back. Giving evidence to the Treasury select committee in March, Wheatley said the FSA was powerless to stop the interest-only “time bomb”.

He added the FSA was also carrying out further work on its MMR proposal to require advice in the vast majority of mortgage sales where a lender speaks to a borrower.

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  1. This is well overdue and I welcome the new Financial Conduct Authorities comments on this area as it is clear that Building Societies have no understanding of risk in particular in respects to investments that are offered by third parties through the Society.

    I myself ran a very successful campaign against Chelsea and Yorkshire Building Societies structured bond products which was incorrectly advertised find enclosed link for further details http://essentialifa.wordpress.com/2011/04/14/top-savings-investment-tips/

    I’d even go as far to say that the Building Societies that offer these products are not acting in the interest of the members but are acting in the interest of the society employees (particularly Directors), as often there are lucrative bonuses available to the staff members for transfer of monies from society to third parties. The Society that offer these products receives quite lucrative levels of commission but again if you track how much of this commission is being paid to staff in bonuses as a way of subsidising salaries I think you will find a very suspicious pattern.

    Building societies after all should be run for the benefit of the members and any commercial arrangement that transfers capital from the Society to third parties should be pulled into question, particularly in these times where Societies are having problems raising affordable money in the money market.

    Finally I would like to say that if we are going to split our Banks into Deposit Banks and Investment Banks maybe we should also consider banning Building Societies from giving equity investment advice even if that is by a third party through a Building Society.

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