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.