Building Societies Act 1986 (Modifications) Order 2024

Baroness Kramer Excerpts

Monday 18th November 2024 Grand Committee

[Baroness Blake of Leeds (Lab)]

I was going to start by welcoming the noble Baroness, Lady Neville-Rolfe, to her place, but I see that she has moved along the Bench. However, I am sure that we will have the opportunity in future.

The Government have committed to modernising the Building Societies Act 1986 to ensure that building societies, which are mutually owned financial institutions, primarily offering savings and mortgage products to members, can compete effectively with retail banks. This order forms part of this commitment, by amending the Building Societies Act 1986 to remove some unnecessary burdens on the sector by aligning certain corporate governance requirements with the same flexibilities afforded to companies under the Companies Act 2006. This aligns within the Government’s wider ambition to unlock the full potential of the mutuals sector, recognising the sector’s potential to drive innovation and economic growth across the country through its emphasis on support for members and communities.

Specifically, this order modernises the 1986 Act by amending and deleting the relevant provisions in Sections 60 and 61, which currently impose a normal retirement age of 70 for directors, which in turn enables building societies to provide a compulsory retirement age for directors in their rules. By amending these provisions, this order will provide building societies with greater flexibility in appointing directors and end blanket age-based restrictions, modernising the 1986 Act in line with the Companies Act 2006.

Moreover, this order will amend Section 80 of the 1986 Act to alter the requirement for the balance sheet of a building society to be signed by two directors and the CEO and instead allow one director to sign the balance sheet on behalf of the board. This removes an unnecessary burden for building societies and aligns the legislation with that for companies, which requires only one director to sign their accounts.

Overall, these amendments make small but important updates to the 1986 Act by removing outdated corporate governance requirements and providing building societies with the same modern flexibilities as retail banks operating under the Companies Act 2006.

Furthermore, I understand that these changes will be welcomed by the sector. For example, the prospect of an amendment to allow one director to sign a building society balance sheet on behalf of the board was welcomed during a consultation published by the previous Government in December 2021. Although the removal of the retirement age for building society directors was not proposed in the 2021 consultation, it was suggested by the Building Societies Association and another large building society in their responses to the consultation, as published in the consultation response in December 2022.

Finally, I shall touch briefly on future considerations. Earlier this year, the Building Societies Act 1986 (Amendment) Act 2024 achieved Royal Assent. This allows for real-time virtual participation at building society general meetings and provides the Government with the powers to introduce subsequent amendments further to modernise the 1986 Act. The Government will introduce these remaining changes in due course.

In conclusion, and as I have outlined, this order makes necessary amendments to the Building Societies Act 1986. Crucially, it will support building societies by aligning certain corporate governance requirements with the same flexibilities afforded to retail banks. This is an important step in progressing the Government’s commitment to unlock the full potential of the mutuals sector. It is my pleasure to bring these amendments to the Committee, and I hope that noble Lords will endorse these important reforms.

[Baroness Kramer (LD)]

My Lords, I will make my comments brief. Like the Minister, I am a strong supporter of the mutual sector, but the values of many of our retail banks have sometimes sent them chasing profits when they should have been serving customers. Mutual societies at least argue that at their base there is a different ethos that makes them far more aware of the needs of both their members and the community. I would very much like to see a significant expansion of the mutual sector, particularly to try to deal with the many unmet needs in the financial services sector.

However, I am a little uncertain about these two changes, although I am not going to oppose them. I think it is a good idea for organisations to refresh, and by removing a retirement age, there may be a temptation, particularly because people develop a certain personal loyalty to particular directors who have been there for a long time, or a hesitancy to refresh than we would have seen if there were a retirement age. Will the Minister comment on that because it is generally good practice? I understand that a hard and fast retirement age creates all kinds of ageism issues, but is there is going to be any kind of mechanism to encourage that look at refreshment from a corporate governance perspective?

The other issue is having one signature rather than three. Again, I have some hesitancies here. In the modern era, it is so easy to provide a signature electronically that one wonders why it should be so desperately cumbersome. I am certain that most directors of mutual societies are people of great integrity and would never allow a falsified statement to go forward. Within financial services, however, we have all been disappointed from time to time by a sort of creeping abuse in one sector or another. I am just concerned that a very natural check may be removed by going from three signatures down to one.