Davidson stated that the FCA has a keen interest in strategy:
- strategic factors which shape the landscape
- resulting strategies and the business models
- how business models create a sector that works well for consumers
He acknowledged some of the strategic questions the building society sector is dealing with, namely:
- the digital challenge,
- the growth of challenger banks
- the economies of scale of the large banks
Davidson also shared some of his thoughts on how the FCA approaches interventions that have an impact on building societies and their respective strategies and business models:
- The FCA expect firms to have their customers at the heart of how they do business; how they develop products and services and how they treat customers.
- Promoting competition is not just about preventing market share dominance; it’s about ensuring that building societies and other firms have the opportunities to reach consumers and grow.
- Innovation if not managed appropriately they can lead to serious risks that can prove existential to individual firms and taken to their extreme could potentially affect a whole market; affordability and responsible lending rules serve to prevent the return of the irresponsible lending practices pre-crisis and so protect the strategically important mortgage market.
- The FCA is concerned as to what will happen to borrowers in the event of a rate rise; over a million borrowers have never seen an interest rate rise.
- FCA recognises the importance of meeting the financial services needs of older consumers; it will publish a series of recommendations in 2017.
- The FCA mortgage market study will also look at consumers’ ability to make effective choices and whether the tools available such as price comparison websites, best buy tables or interactions with advisers, do in fact effectively help customers source the products that best meet their needs.
The UK’s 44 building societies approved £57.8bn in new lending in 2015; some 395.3k new mortgages giving them a 26% market share. At the end of 2015, they held mortgages with a value of £265.2bn; 21% share.
Retail savings balances increased by £10.4bn and at the end of 2015 building societies held savings balances of £246.6bn; 18% share of the UK market.
The BSA believes that as customer owned organisations, that its member firms genuinely have their customers at the heart of their businesses. Intuitively this sounds right, however, it equally raises the bar for boards and senior executives to ensure their firms consistently achieve “good customer outcomes”.
Strong product governance is a prerequisite, not just at the point of sale but throughout the life of the relationship with customers/members. With huge quantities of mortgages being written on short-term fixed rates, the moment of truth will be the re-pricing of mortgages on roll-over.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.