Robin Fieth is a year into his role at the head of the Building Societies Association (BSA), and has looked at the changes needed in governance, financing and regulation. These, he said, would help the sector in its crucial role – to help creating a more diverse banking sector and enable more people to save and buy homes.
Mr Fieth joined BSA in late 2013, after a career working at PwC, in plcs and later heading up membership and operations at the ICAEW, the professional body for chartered accountants in England and Wales.
This last role means he’s no stranger to the concept of mutuality, he says.
“The ICAEW is itself a very large mutual – it’s owned by 142,000 members – so I’ve actually come to the building society movement from another large mutual membership organisation. It’s a natural progression.”
The BSA is the membership body for the UK’s 44 building societies, ranging from the largest, Nationwide, to local building societies such as Ipswich and Penrith, and specialist societies like Ecology. New figures from the BSA, released in September, show that together they have over 1,500 branches across the UK and assets totalling £316bn.
Because he only joined the organisation in 2013, Mr Fieth has a relatively dispassionate view of the mutual sector during the financial crisis. In spite of the problems at the Co-operative Bank, and its ramifications for the wider co-operative/mutual movement, he remains positive. “What I observe is that the members and the public seem to have a much better perception of buildings societies, credit unions and mutuals than they do of corporates,” he says. “It shows up in surveys and opinion polls.
“It’s important that, coming out of 2008, the building society sector didn’t have recourse to public money – and it’s of major importance for the Co-op Bank. That weighs very heavily against corporate banks.”
He adds: “As we saw since 2008, because building societies have access to their own capital rather than relying on wholesale markets, they were able to continue lending into the mortgage market in a way that banks were unable to lend into the SME market.”
But, despite this strong performance, Mr Fieth and the BSA argue that there are strategic issues facing the sector. Earlier this year, the organisation conducted a review asking its members how they would like the financial sector to look in 20 years, and the steps for getting there. The vision that came out, he says, is of a financial sector characterised by diverse models of ownership.
The BSA says that making building societies central to a remodelled financial sector will require excellent governance, a focus on sustainable capital and, crucially, appropriate regulation.
On governance, Mr Fieth makes a counter-intuitive point. “What struck me when I came into the sector is that, in a mutual model where you have a democracy, you tend not to have huge swathes of activist shareholders or members.”
In a plc, by comparison, “whether you love them or hate them, the activist shareholders, the hedge funds, those sorts of organisations, can act very effectively to keep a management team on its toes.”
This, he says, “puts even more emphasis on the need for really excellent corporate governance. If you haven’t got that sort of movement behind you, it’s quite easy to slip off the boil.”
Mr Fieth stresses that “the mutual model was founded on a fundamentally different concept to the corporate model. Plc banks are there to create a return for their shareholders. Building societies were founded individually to improve people’s lives.
“When I talk about excellent and distinctive governance, I’m looking for what it is that makes the governance of building societies or mutuals not only excellent, but distinctive in achieving that fundamental purpose, as opposed to the purpose of a corporate.”
But the governance of building societies, on the whole, remains robust, stresses Mr Fieth. “When you typically look at a building society board it pretty much resembles a corporate board,” he says. “It has executive directors,
it has non-executive directors.”
But while he notes “two or three” recent examples of building societies recruiting non-executive directors from the membership, these are exceptions, with most boards composed of executives and appointed expert non-executives, with little or no member representation.
“What has grown up is a different board structure, as compared, say, with the co-op,” he adds.
While building society boards have developed differently, their approach to raising capital has been similar to that of the majority of the co-operative movement.
“Fundamentally, capital for building societies – as all mutuals – comes from retained profit,” says Mr Fieth. “The reason building societies make profits is so they are secure and can continue to grow and lend.
“It’s incredibly resilient and establishes a sort of natural level of growth. So it brings a sustainability that enables societies to weather the bad times as well as the good. I tend to call it patient capital.”
That said, last year a new way for building societies to raise capital was introduced. Core Capital Deferred Shares have only been used once to date – by Nationwide, the UK’s largest building society, to raise £500m. It allows institutional investors to buy one-member, one-vote shares in building societies in lots of £25,000 or more.
“Nationwide did the sector a huge favour,” says Mr Fieth, but adds that the regulation is far from perfect.
“The issues with CCDS are first that they are not available to retail investors [individuals] and are available to institutional investors in lot sizes of £25,000 and upwards.
“It does come across as bizarre that the major group of people who cannot invest in their own businesses are the members of the mutual.”
The BSA, he adds, is “campaigning very hard” and working with regulators to address to this issue. “I would say we’re cautiously hopeful.”
The BSA is also working hard to address additional regulatory hurdles faced by building societies.
The regulatory framework – set at an international level and regulated in the UK by the Financial Conduct Authority and the Prudential Regulation Authority – is, he says, designed for conventional corporate banks. When applied to building societies it often places additional burdens on them.
An important change the BSA is lobbying for is “a revision to the Financial Services Compensation Scheme,” which requires financial institutions to pay into a national pot to compensate individuals if a bank, building society or credit union cannot itself pay any compensation owed.
The existing legislation “puts an unfair burden” on building societies because they are more reliant on deposits than wholesale markets for their capital. They get a disproportionate hit.
This “hit” means that, on average, about 16% of the sector’s retained profit is channelled away from the societies and their members, and into the scheme, says Mr Fieth.
More broadly, he says that there are problems with the PRA and FCA’s ‘competition objective’ which requires them to take a proactive approach in creating a competitive financial services industry.
“We are delighted that both the PRA and FCA have competition objectives,” says Mr Fieth, “but we don’t think that goes far enough: you could argue that competition is just more and more players who actually all look the same.
“We’re campaigning for both to be given a statutory diversity objective as well, which recognises the real value to both the financial services sector and to society in general of a truly diverse sector.”
While the BSA is campaigning for an appropriate regulatory framework, it is also aware that building societies are more than just financial organisations.
“One of the most important things is going back to that fundamental purpose of improving people’s lives: what does that look like today?” he says.
A modern take on the role of building societies would be to stand for broader social objectives.
“Fundamentally, we have a housing shortage in this country and we haven’t had a government that has taken housing policy seriously, in terms of supply, for years,” argues Mr Fieth. “It’s about time the housing minister was elevated to a Cabinet post […] and that the government really does sponsor and back new housing plans.”
Furthermore, he says, “one of the issues we’re really concerned about is that 32% of households do not have any savings whatsoever. For those households to avoid getting into unsustainable debt, there is a real need for them to start saving.
“What we called on the Chancellor to do in March is the idea of the ‘first ISA’, for those people who have never saved.
“They might save, say, £500 a year, and the government might give them, say, up to £100 a year, to start to build up a fund of resilience.”
This is the BSA campaigning for more than just the interests of building societies.
“It comes back to what we stand for,” says Mr Fieth. “Those are the things we should be standing for.”