Legalize / United Kingdom / Public General Act

Building Societies Act 1986

Type Public General Act

Publication 1986-07-25

State In force

Department Statute Law Database

Source legislation.gov.uk

articles 16

Reform history JSON API

PART I — FUNCTIONS OF THE Financial Conduct Authority and the Prudential Regulation Authority

The Building Societies Commission

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(1) The FCA has the following functions under this Act in relation to building socities—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) to administer the system of regulation of building societies provided for by or under this Act; and

(c) to advise and make recommendations to the Treasury and other government departments on any matter relating to building societies.

(1A) The PRA has the following functions under this Act in relation to building societies—

(a) to secure that the principal purpose of building societies remains that of making loans which are secured on residential property and are funded substantially by their members;

(b) to administer the system of regulation of building societies provided by or under this Act, but only in so far as sections 5, 6, 7 and 9A confer functions on the PRA; and

(c) to advise and make recommendations to the Treasury and other government departments on any matter relating to building societies.

(2) The FCA and the PRA also have , in relation to such societies, the other functions conferred on them respectively by or under this Act or any other enactment.

Financial provision for Commission

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(1) There shall be charged on building societies such a general charge towards the expenses of the Commission and such fees in respect of the exercise of its functions as are authorised under this section.

(2) The Treasury may, by regulations, make provision for—

(a) a general charge to be levied, with respect to each accounting year of the Commission, on every authorised building society to be paid at such rate computed by reference to such criteria, at such time and in such manner as may be prescribed; and

(b) fees of such amounts as may be prescribed to be paid by building societies in respect of the exercise of the Commission’s functions in relation to them.

(3) The provision to be made from time to time under subsection (2) above, by way of the general charge and fees, shall be such as to produce an annual revenue of the Commission sufficient to meet its expenses properly chargeable to revenue account, taking one year with another.

(4) Regulations under subsection (2) above may include—

(a) provision for any fees payable by societies to be reduced or for payment of any fees to be waived by the Commission in circumstances determined by or under the regulations; and

(b) such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient.

(5) The power to make regulations under subsection (2) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(6) The amounts received by the Commission under this section shall be applied as an appropriation in aid of money provided by Parliament for the expenses of the Commission under this Act, and in so far as not so applied, shall be paid into the Consolidated Fund.

(7) In this section—

“authorised”, in relation to an accounting year of the Commission, means authorised at any time during that year; and

“prescribed” means prescribed in regulations under subsection (2) above.

Prohibition on linking services.

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(1) The Commission shall keep proper accounts and proper accounting records and shall prepare in respect of each accounting year a statement of accounts in such form as the Treasury may direct.

(2) The statement of the accounts required by subsection (1) above may be combined with the statement of the accounts of the Chief Registrar which he is required to prepare as regards his functions.

(3) The Commission shall send to the Treasury and to the Comptroller and Auditor General, before the end of the period of seven months after the end of each accounting year, a copy of the statement of accounts for that year.

(4) The Comptroller and Auditor General shall examine, certify and report on every statement of accounts received by him from the Commission and shall lay a copy of the statement and of his report thereon before each House of Parliament.

(5) In this Part “accounting year”, in relation to the Commission, means the period of twelve months ending with 31st March in any year, except that the Commission’s first accounting year shall end on 31st March 1987.

Notices, hearings and appeals.

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(1) It shall be the duty of the Commission to lay before the Treasury and before Parliament as soon as possible after the end of each accounting year a report on the discharge of its functions during that year.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The Commission may lay before Parliament from time to time such other reports relating to the discharge of its functions, whether in relation to building societies generally or a particular building society, as it thinks fit.

Part II — Constitution of Building Societies

Establishment

Directors: number.

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(1) A society may be established under this Act if (and only if) it complies with the following requirements, namely—

(a) its purpose or principal purpose is that of making loans which are secured on residential property and are funded substantially by its members; and

(b) its principal office is in the United Kingdom.

(2) A society is established under this Act on compliance by the persons establishing it with the scheduled requirements and is incorporated under this Act as from the date of registration by the FCA .

(3) A society incorporated under this Act is referred to in this Act as a “building society”.

(4) A society incorporated under the repealed enactments whose principal office, as registered with the central office immediately before the commencement of this section, was in the United Kingdom, shall be deemed to be registered (and accordingly as incorporated) under this Act.

(4A) If, after its establishment, a building society fails to comply with the requirements imposed by subsection (1)(a) or (b) above—

(a) the powers conferred on the appropriate authority by section 36 or 37 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act.

(5) Subject to the provisions of this Act, a building society shall have the powers conferred on it by its memorandum.

(8) Schedule 2 to this Act has effect as respects the constitution, powers, and regulation of building societies and in that Schedule—

(a) Part I makes provision with respect to the constitution, memorandum, rules and certain incidents of membership;

(b) Part II makes provision with respect to the capacity of a society and the powers of its directors to bind it; and

and in this section “scheduled”, with reference to requirements for establishment, means contained in that Schedule

(9) Any obligation imposed by this Act or the rules of a building society to give or send notices or other documents to members is subject to paragraph 14 of that Schedule.

(10) In this Act “residential property” means land at least 40 per cent of which—

(a) is normally used as, or in connection with, one or more dwellings; or

(b) has been, is being or is to be developed or adapted for such use;

and for the purposes of this subsection, the area of any land which comprises a building or other structure containing two or more storeys shall be taken to be the aggregate of the floor areas of each of those storeys.

Directors, etc, not to accept commissions in connection with loans.

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(1) A building society shall secure that the difference between—

(a) the value of X on any quarter day; and

(b) the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,

does not exceed 25 per cent of that value of X.

(2) For the purposes of subsection (1) above—

X = the difference between the total assets of the society and any subsidiary undertakings of the society as shown in the society’s accounts and the aggregate of—

(a) the liquid assets of the society and any such undertakings as shown in those accounts ...;

(b) the fixed assets of the society and any such undertakings as so shown; and

(c) where any such undertakings are effecting or carrying out contracts of insurance, such of their assets as shown in those accounts as represent long term insurance funds; and

Y = the principal of, and interest accrued on, loans which are owed to the society or any subsidiary undertaking of the society and are fully secured on residential property;

and for the purposes of this subsection the total assets of a society and any subsidiary undertakings of the society shall be taken to be increased by the amount of any provision made for bad or doubtful debts of the society or any such undertaking.

(3) Any loans owed to the society or any subsidiary undertaking of the society shall be disregarded for the purposes of the definition of “Y” in subsection (2) above to the extent that they are not included in the total assets of the society and any such undertakings as shown in the society’s accounts.

(4) Any reference in subsection (2) or (3) above to anything being shown in a society’s accounts shall be construed—

(a) in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;

(b) in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.

(5) If a building society fails to comply with the requirement imposed by subsection (1) above—

(a) the powers conferred on the appropriate authority by section 36 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act.

(6) The Treasury may by order substitute for the percentage specified in subsection (1) above such greater percentage (not greater than 40 per cent) as appears to them to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Treasury to be necessary or expedient.

(7) The Treasury may, by order—

(a) modify subsections (2) and (3) above in their application to assets of subsidiary undertakings;

(b) apply those subsections to corresponding assets of associated undertakings; or

(8) An order under subsection (7) above may make—

(a) different provision for different circumstances;

(b) provision for particular assets of undertakings to be disregarded; and

(9) The power to make an order under subsection (6) or (7) above is exercisable by statutory instrument.

(10) No order shall be made under subsection (6) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(11) A statutory instrument containing an order under subsection (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(12) In this section “long term insurance funds", in relation to an undertaking effecting or carrying out contracts of insurance, means funds maintained by it—

(a) in respect of its business in effecting or carrying out contracts of long term insurance in accordance with rules made by—

(i) the FCA under section 137A of the Financial Services and Markets Act 2000, or

(ii) the PRA under section 137G of that Act,

which require an authorised person who has permission to effect or carry out contracts of insurance to identify assets which belong to that person and which are maintained in respect of a particular aspect of that person’s business; or

(b) where it is incorporated in a country or territory outside the United Kingdom, under the corresponding provisions of the law of that country or territory.

(12A) The definition of X in subsection (2) and subsection (12) must be read with—

(a) section 22 of the Financial Services and Markets Act 2000;

(b) any relevant order under that section; and

(13) Where a loan is owed to a lending syndicate of which a building society or connected undertaking of a building society is a member, so much of the loan as is referable to the society’s or undertaking’s participation in the syndicate shall be treated for the purposes of this section and sections 6A and 6B as a loan owed to the society or undertaking.

(14) In this section and section 7—

“accounts”—in relation to a building society without subsidiary undertakings, means individual accounts ...;in relation to such a society with such undertakings, means group accounts ...;

“quarter day”, in relation to a building society, means a day on which a financial year of the society ends, or a day which is three months, six months or nine months after such a day;

and references to any value on a quarter day are references to that value at the close of business on that day.

(15) If an agreement between the appropriate authority and a building society so provides, the definition of “quarter day” in subsection (14) above shall have effect in relation to the society as if for any reference to a number of months there were substituted a reference to a number of days specified in the agreement.

(16) In this section, in the case of societies which produce IAS individual accounts or IAS group accounts;

“fixed assets” means–land and buildings;plant and machinery;equipment, fixtures, fittings and vehicles;payments on account and assets in the course of construction; andintangible fixed assets.

“liquid assets” means–cash and cash equivalents;treasury bills and similar securities;loans and advances to credit institutions; anddebt securities and other fixed income securities.

Raising funds and borrowing

Power to raise funds and borrow money and limit on non-retail funds and borrowing

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(1) A building society shall secure that the difference between—

(a) the value of X on any quarter day; and

(b) the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,

does not exceed 50 per cent of that value of X.

(2) For the purposes of subsection (1) above—

X = the aggregate of the following, namely—

(a) the principal value of, and interest accrued on, shares in the society;

(b) the principal of, and interest accrued on, sums deposited with the society or any subsidiary undertaking of the society; and

(c) the principal value of, and interest accrued under, bills of exchange, instruments or agreements creating or acknowledging indebtedness and accepted, made, issued or entered into by the society or any such undertaking; and

Y = the principal value of, and interest accrued on, shares in the society held by individuals otherwise than as bare trustees (or, in Scotland, simple trustees) for bodies corporate or for persons who include bodies corporate.

(3) The following shall be disregarded for the purposes of subsection (2) above, namely—

(a) any sums or amounts which are own funds; ...

(aa) subject to subsection (3A), the principal of, and interest accrued on, sums deposited with the society or any subsidiary undertaking of the society by a small business (see subsection (10));

(b) to the extent that they are not included in the total liabilities of the society and any subsidiary undertakings of the society as shown in the society’s accounts—

(i) any sums deposited with the society or any such undertaking; and

(ii) any indebtedness created or acknowledged by bills of exchange, instruments or agreements accepted, made, issued or entered into by the society or any such undertaking.

(d) amounts represented by specified debt instruments issued by the society with a view to maintaining the minimum requirement for own funds and eligible liabilities;

(e) sums received by the society under a sale and repurchase agreement entered into by the society with a view to complying with a specified PRA rule.

(3A) In respect of any day by reference to which the value of X falls to be calculated for the purposes of subsection (1) in relation to the society, the total amount to be disregarded under subsection (3)(aa) may not exceed 10% of the amount that would, in the absence of subsection (3)(aa), be the value of X on that day.

(4) The reference in subsection (3) above to anything being shown in a society’s accounts shall be construed—

(a) in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;

(b) in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.

(5) If a building society fails to comply with the requirement imposed by subsection (1) above—

(a) the powers conferred on the appropriate authority by section 36 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act.

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