SOCIETYNo. 46 | Winter 2017

Data protection Housing Interview

page 6 page 12

GDPR – Are you ready for the May deadline?

Could modern methods of construction become mainstream in UK housebuilding?

Paul Ellis celebrates 25 years at Ecology Building Society

matters

page 5

Moving onMore success for building societies in 2017, and looking into the New Year.

Opinion

pages 3 & 4

We knew it all along – ownership really does matter

Society Matterscontents

It’s the most wonderful time of the year… and not just because pigs in blankets are officially an acceptable breakfast – but also because it provides the opportunity to reflect on a busy year in which lots of progress has been made. In this, the final edition of 2017 we have well-placed experts covering more topics that matter to our sector than you can shake a candy cane at.

Society Matters is a publication of the Building Societies Association – ISSN 1756-5928.

The views expressed by authors in this magazine are not necessarily those of the BSA.

Chief Executive: Robin Fieth robin.fieth@bsa.org.uk

Editor: Amy Harland amy.harland@bsa.org.uk

BSA, 6th Floor, York House, 23 Kingsway, London, WC2B 6UJ www.bsa.org.uk

Designed by: Whatever Design Ltd. www.whateverdesign.co.uk

Printed by: Trident Printing, www.tridentprinting.co.uk

opinion 3We knew it all along – ownership really does matter

data protection 5GDPR: Are you ready? We explore ‘re-permissioning’

housing 6Could modern methods of construction become mainstream in UK housebuilding?

New home quality with modern methods of construction

How to break free from the ‘housebuilding pool of stagnation’? Graham Sibley MSP shares his thoughts

older borrowers 9Lending into retirement: An update

insight 10We catch up with the sector’s recently appointed CEOs

interview 12Paul Ellis celebrates 25 years at Ecology Building Society

legislation 14Tax evasion: the latest legislation and how to prevent your organisation falling foul

overview 15Year in numbers

diary 16

Hello and welcome to the winter edition of

After what feels like a lifetime we now know that this is the penultimate Christmas we will enjoy as a member of the European

Union, and that in March 2019 we will be taking our first steps as an independent nation: deal or no deal. I hope that the UK will remain on member states’ Christmas card lists when it is all over.

Two years on from the launch of the BSA’s Lending into retirement report, it is fulfilling to see the progress we have made when it comes to meeting the needs of those who will be older borrowers at the end of their mortgage term – and that building societies continue to lead the way (P9). BSA Chairman Jonathan Westhoff discussed this demographic shift along with the housing crisis in his speech at last month’s BSA Annual Lunch.

Modern methods of construction (MMC) was a hot topic on my table at the Lunch, so I am happy to bring you three articles on the subject from the perspectives of the BSA, housing warranty providers NHBC and a Member of Scottish Parliament. P6-8.

Elsewhere in housing, the take-away announcement from the Autumn Statement was the abolition of Stamp Duty for first-time buyers. However our data shows that this is actually a bigger barrier for home movers than first-time buyers. Conversely, the allocation of £44bn to housing infrastructure and lifting

the Housing Revenue Account indicates we are slowly moving in the right direction for the nation’s underserved home searchers: whether they are looking to rent or buy.

So as we dig out our Christmas jumpers and mull every beverage in sight, on behalf of everyone at the BSA I would like to wish you a wonderful festive season and a safe and happy New Year.

See you in the March edition!

AMY HARLAND Society Matters Editor

You can keep up with the BSA on Twitter @BSABuildingSocs

We knew it all along

2 SOCIETY matters | WINTER 2017

SOCIETY matters

welcome

By ROBIN FIETH, BSA Chief Executive

We knew it all along

– ownership really does matter

We have always felt there is something special about building societies and the way they treat their customers, attributing it to “being a mutual” and recognising that our customers are also our members.

For a number of years the BSA’s six-monthly customer tracker survey has shown building societies scoring consistently better than shareholder

owned banks on measures like “I can trust my provider to act in my best interests” and “I would recommend my provider to my family and friends”. Third party surveys carried out by Which? and other consumer organisations consistently show that customers recognise great service when they get it – and that they get great service from businesses called building societies. But these customers typically don’t understand why.

As a sector, we have debated long and hard about the mutual dividend, the lack of customer versus shareholder conflict, and about the customer being truly at the heart of the organisation. However, in most

cases I get the sense that we haven’t really understood deep down how the magic works.Maybe now we have some better insight than we have achieved before. Over the summer months more than 2,400 employees from 28 building societies participated in a survey focusing on who they thought receives the benefit from building societies. Meanwhile, YouGov conducted a parallel survey of 1,100 adults working in public and privately owned companies, the public sector and charities.

The results were presented to BSA members ahead of the Annual Lunch on 15 November and were launched in a BSA report “Ownership Matters” during NEDs’ Week earlier this month. In a forthright foreword to the report, Will Hutton, commentator and Principal of Hertford College at Oxford University, argues that ownership matters because owners are the

ultimate custodians of an organisation’s purpose, from which derives its strategy, business model and culture. Like many other informed writers, he looks back on the demutualisations of the 1980s and 1990s as a period of economic destruction that enriched a particular generation of incumbent managers and savers, but “would denude the country in future of wise lenders along with their important culture.”

While the concept of mutuality may be very poorly understood by building society customers and the general public, what stands out loud and clear from the survey is that the concept of customer-ownership is well understood among building society employees. 85% of survey respondents agreed that they would feel confident explaining the ownership structure of their building society to a customer.

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opinion

opinion

The fact that employees believe the respective owners of their firms are the most important stakeholder group has a huge bearing on which values and beliefs are the most important in the culture of their organisation. This perhaps shows most clearly in the report’s key finding. As can be seen in the graph below, the proportion of value created by building societies that passes to customers is materially greater than in any other business form covered by the survey. Building society employees believe that 37% of the value created by their businesses is received by their customer-owners. Asked the same question, employees in publically listed companies felt that only 13% passed to customers.

This is not a surprise. It is a re-affirmation of what we knew. More importantly, the survey findings help explain the magic in a fresh way. The fact the employees appreciate so strongly who benefits from their contribution, propels the culture of building societies from the bottom up in a way that a Board inspired culture change programme will often struggle to achieve.

In his comments at our November gathering, Will Hutton spoke about the “north star of purpose” that has enabled building societies to outperform “non-purposed” businesses consistently over 25 years – a reason why financial mutuals should be a conspicuous pat of the UK corporate landscape far into the future.

In an increasingly competitive world of finance, this is gold dust. Over the past year we have spoken often about the need for building societies to build on their areas of inherent competitive advantage and stand out with consumers for the right reasons – as a sector that is growing, dynamic, forward looking and a force for good in financial services. Being able to demonstrate to present and future generations of customers that membership of a building society will bring far more value and benefit to them than alternative business models, provides our sector with exactly the opportunities to stand out in the crowd for all the right reasons. Building societies are seen as friendly, supportive, trustworthy, welcoming and customer-focused. The customer treatment chart below explains clearly why.

Forward, or as they currently say in France, “en marche!”

Next steps:

You can follow Robin on Twitter @bsaceo

You can read the Ownership Matters survey report at bsa.org.uk/OwnershipMatters

Ownership mattersOrganisational culture in building societies

Winter 2017

My organisation is trustworthy

My organisation puts customers/ members

first

My organisationis straightforward to

deal with

My organisation is ethical

My organisation is friendly

The working environment is

supportive

The working environment encourages employees to

take responsibility

The working environment is

respectful

The working environment is

happy

The working environment has

integrity

Customer treatment% of employees who strongly agree or tend to agree that the value applies

Working environment% of employees who strongly agree or tend to agree that the value applies

Building Societies

Publicly listed company (owned by shareholders)Privately owned company (which I don’t own any part of)Privately owned company (which I own in full or part)Public sector (e,g. NHS, police, government etc.)Charity/Not For Profit

surveyed by YouGov

surveyed by BSA

The BSA asked building society employees, and YouGov asked respondents to its Omnibus survey who were in work, to what extent they agreed or disagreed that each of the stated values applied to the organisation where they worked.

For methodology, please see page 14.@BSABuildingSocs www.bsa.org.uk Ownership matters10

“ While the concept of mutuality may be very poorly understood by building society customers and the general public, what stands out loud and clear from the survey is that the concept of customer-ownership is well understood among building society employees.”

Customer treatment% of employees who strongly agree or tend to agree that the value applies

www.bsa.org.uk @BSABuildingSocsOwnership matters 5

Organisations create value when their activities convert resources including raw materials, staff skills, technology and information into goods and services, but who ultimately receives the value that has been created?

We asked people working for building societies to estimate the percentage of the value or benefit created by their Society that went to different stakeholder groups. Separately, independent survey company YouGov asked people working for other types of organisation the same question in relation to their employer.

These surveys give the perspective of employees, so the results are a measure of perception not a financial calculation. However, the results do show the groups for whom employees believe their organisations create value. This indicator is insightful as it points towards potential differences in organisational culture across various types of ownership.

Who are you working for?

1 2 3 4 5 6

CustomersThe customer-ownership of building societies is reflected clearly in these results. The proportion of benefit seen to be received by customers / members was highest amongst building society employees.

This contrasts for example with private sector companies where the employee surveyed is not an owner and far less benefit is perceived to go to customers.

The proportion of benefit received by customers

Building society employees Public listed company Privately owned company (which I don’t own any part of)

Privately owned company (which I own in full or part)

Public sector (e.g. NHS, police, government etc.)

Charity / Not For Profit

The concept of customer-ownership is well understood among building society employees.

85% agreed that they would feel confident explaining the ownership structure to a customer.

And this ownership structure is reflected in the groups that these employees believe receive the value created by a building society’s activities.

For methodology, please see page 14.

1. Building society employees

2. Public listed company

3. Privately owned company (which I don’t own any part of)

4. Privately owned company (which I own in full or part)

5. Public sector (e.g. NHS, police, government etc.)

6. Charity / Not For Profit

The proportion of benefitreceived by customers

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culturedata protection

By MARC MICHAELS, Director of Strategy & Insight, Paragon Customer Communications

GDPR: are you ready? We explore ‘re-permissioning’The new General Data Protection Regulation (GDPR) is drawing nearer, becoming enforceable on 25 May 2018. Is your company ready? Here, we explore ‘re-permissioning’.

When the new GDPR comes in, amongst many other

responsibilities, companies will have a duty to ensure they have proper consent to communicate marketing messages to their customers.

Consent needs to be freely given, specific, informed, and an unambiguous clear affirmative action.

So, if your current consent measures don’t meet the new GDPR definitions you will have to refresh it – or find an alternative lawful way to send your communications.

Your existing consent may not be acceptable under the new GDPR in a number of ways. You will need to ask: “Was it coerced, bundled in with something else in order to receive a benefit? Was it not an affirmative action such as pre-ticked boxes on a webpage or inferred from silence?” If the answer to either of those questions is ‘yes’, or the consent was obtained a long time ago or you don’t have

proper records that the customer gave it, then you will need to get back in touch with parts or all of your customer database to secure the right permissions to market to them.

As the GDPR deadline draws closer, there is a risk of individuals becoming bombarded with permission requests and choosing to decline more than they would if they had been approached sooner.

These changes in regulations present an opportunity for businesses to cleanse their customer data, re-engage, and remove those who aren’t interested in receiving your communications.

Businesses need to make it easy for customers to give their consent. Customers are more likely to consent if they value what you are offering and trust you to do what you what you promise. If they feel that you can store personal information securely, that you won’t pass it to third parties, and that you won’t bombard them with irrelevant messages.

Re-permissioning is possibly the most important marketing campaign you will ever run, and it needs to be properly planned, created and delivered as a co-ordinated activity – monitoring engagement and reacting accordingly with pre-set business rules. Simply put, getting it right will allow you to continue marketing to your company’s most valuable resource – your customers.

You might wish to adopt a ‘re-permissioning cascade’It is important to look at re-permissioning in an integrated fashion and co-ordinate your efforts:

• Understand which audiences it is key to re-permission (not all will be worth the investment), using data analytics to profile the base in terms of demographics and customer value.

• Understand which channels are open to you, and prioritise based on audience likelihood to respond.

• Work out how often you want to contact before ruling out further attempts.

• Track engagement and switch channels as required.

• Reset the clock for when consent will need refreshing in the future.

It is vital to get the messaging right. You could vary your messaging for different audiences, using dynamic content for each audience based on demographics, and using the content most relevant to your audience.

Next steps:

You can also find more blogs and articles on GDPR and other topics on Paragon’s website paragon-europe.com Paragon’s re-permissioning cascade can be found here: http://bit.ly/2itqc5F

“ As the GDPR deadline draws closer, there is a risk of individuals becoming bombarded with permission requests and choosing to decline more than they would if they had been approached sooner.”

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xxxx

As part of the BSA’s ongoing work to explore ways that could potentially solve the UK’s

housing crisis, we headed to Almere, a city established in the 1970s just outside Amsterdam, to see how their mainstream housebuilding differed to our own, and how we could apply that to our own housebuilding and buying models.

We had two days with four UK lenders and three valuers to absorb as much information as possible from our European neighbours. Olof Van Der Linden Architects explained how much of Almere was built using MMC. Steel frame designs filled with concrete, as opposed to traditional brick-and-block, are particularly popular. We then visited a Kavelwinkel (or ‘plot shop’) where members of the public can go and ‘pick n mix’ their own plot layout and home design with the help of on-hand architects and legal experts.

A session with Rabobank – one of the Netherlands’ largest mortgage lenders – highlighted that the Netherlands face similar housing issues to the UK: an ageing population and a shortage of homes. They explained that initial reservations towards MMC were superseded by the Netherlands’

confidence in building regulations – and their trusted assurance of durability. Rabobank has had a positive experience with MMC, and believes most lenders in the Netherlands are comfortable with these build techniques.

Interestingly, it appeared the lending focus is not on loan-to-value, but on affordability. They certainly seem quite relaxed about lending on these ‘new’ technologies. The UK’s risk-averse attitude stands in stark contrast to the Netherlands’ more positive, arguably more constructive approach: ‘if the buyer can afford it, and the valuer is happy, then it makes sense surely?’

The trip emphasised how far the UK has to go, but also that it is very possible to bring MMC into mainstream UK housebuilding.

The Netherlands draws many parallels to the UK both in terms of housing market pressures, and in practical factors such as the climate – important when assessing housing longevity.

We are starting to see some steps forward in this space in the UK already:

• The Government’s 2017 Housing White Paper makes clear commitments to support the growth of MMC such as offsite manufacturing. It echoed recommendations set out in the BSA’s 2016 report Laying the foundations for MMC

• There is now a plot shop in Graven Hill, Bicester –not dissimilar to the Kavelwinkel in Almere

• Legal & General has opened an offsite manufacturing factory in Yorkshire

• Teesside University has launched a programme of pre and post-graduate courses to educate on modern building techniques, along with Channel 4’s George Clarke’s company MOBI

At the time of the programme launch, George said: “The slow and antiquated method of building new homes is painful and, fundamentally, we still build homes the way we did hundreds of years

ago. Whilst technology corporations, telecommunication companies, the automotive and aerospace industry are advancing at incredible rates, the house building industry is stagnant and it’s genuinely time for systematic change.”

The BSA will be part of the DCLG MMC cross-sector working group looking at ways to increase uptake of MMC and remove barriers, so there is some progress being made within our sector but we – along with the wider housing industry – have a long way to go.

Ultimately, I feel that MMC certainly has a place in the UK’s housebuilding repertoire alongside traditional building techniques such as brick and block. MMC homes have stood the test of time both for the past forty years in Almere but also around the world in places such as Japan and America. It will take time and education for lenders, valuers, builders and consumers alike to truly embrace MMC, but we must start making real changes now to stand a chance of building enough homes in future.

Next steps:

Head to bsa.org.uk/MMCreport for the Laying the Foundations for Modern Methods of Construction report

housing

By SARAH WILDE, Mortgage Policy Adviser, BSA

“ The UK’s risk-averse attitude stands in stark contrast to the Netherlands’ more positive, arguably more constructive approach: ‘if the buyer can afford it, and the valuer is happy, then it makes sense surely?’”

Could modern methods of construction become mainstream in UK housebuilding?

The BSA visited the Netherlands, who widely use these building techniques, to find out.

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housing

New home quality with modern methods of construction It is increasingly clear that housing output at a time of declining availability of skills requires ever more innovation by the house-building industry and greater use of modern methods of construction (MMC). As the Farmer Review and the Housing White Paper stress, without a change to the status quo, the prospects of making real progress in tackling the UK’s housing need are severely limited.

At NHBC we are witnessing an upsurge in interest in offsite construction, with

increasing numbers of systems and components being put forward to us for assessment against the NHBC Standards. Such reviews are essential, to be assured that homes and their component parts are designed, manufactured and constructed to consistently meet performance standards.

It is an established expectation amongst homeowners, landlords, investors and mortgage companies that new homes will last a very long time. Reflecting this expectation, NHBC explicitly requires a life of 60 years for the structure. This means that materials and components need to be selected and assembled carefully so that a 60 year lifespan can be achieved in reality, with the construction of the finished home having the durability and resilience to withstand the vagaries of the UK climate. In practice, homes designed for 60 years can be expected to last well beyond that time.

The key question we are looking to answer for investors and lenders in particular is whether we can provide insurance on the finished home, rather than simply assurance that the components are robust and manufactured to a consistent quality.

Investors and lenders want to know that homes they potentially invest in or provide mortgages on will be of sufficient quality, so NHBC is working very closely with off-site component manufacturers, architects,

developers and contractors to help ensure that homes built using these components are of the same finished standard as traditionally built homes.

As the leading home warranty and insurance provider and standard-setter for UK house-building, NHBC’s warranty and insurance products cover around 80% of new homes built in the UK and currently protect over 1.4 million homes across the private, affordable and rental sectors.

Over time, we have seen a range of systems and components coming to market – some more successful than others. We have witnessed unforeseen issues with finished homes and we learn lessons from the issues we view during inspections on site and from claims for structural defects.

Data collected from our on-site inspections and claims is constantly analysed and fed back to facilitate continuous improvement and updating of NHBC Standards, which ultimately benefits homebuyers. This “virtuous circle” enables NHBC to evolve house-building Standards to accommodate emerging issues and new methods.

Once NHBC has reviewed the design and manufacturing quality of components against the need

for at least a 60-year life, and assessed the transport, storage and integration into the finished home against the technical standards, we will provide the same warranty as we would on a traditionally built home. As long as these standards are met, NHBC will provide the same level of warranty and insurance on new homes whatever their construction.

We see MMC as an important component in delivering more homes, quicker, and to a high quality standard, and will continue to work with manufacturers and builders to ensure a quality product that will stand the test of time.

Next steps:

For more information on the NHBC’s Buildmark warranties, visit nhbc.co.uk

By GRAHAM SIBLEY, NHBC Market Development Manager

“ As long as these standards are met, NHBC will provide the same level of warranty and insurance on new homes whatever their construction.”

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However, despite this being a currently viable option, to build en masse at faster delivery times, here in Scotland we are sitting in a

housebuilding pool of stagnation.

I have visited off-site housebuilders in Scotland, and the common rhetoric is that there is no ‘top-down’ support for this innovative industry, little consumer knowledge of it and a skills gap which is near a cliff edge.

We have facilities to build off-site but they are operating at under half capacity because there is not enough demand, whilst house building across Scotland sits at a tiny 16,000 homes per year – a far cry from the Scottish Government’s target to build 35,000 homes per year.

Yet this target would be much easier to achieve if the focus was shared between traditional – i.e. bricks and mortar – and modern methods of construction (MMC).

The UK Government introduced the Homes Building Fund, which is providing £3 billion, with smaller builders and “innovative schemes” invited to apply. Of course, housing is a devolved matter in Scotland, and innovative schemes aren’t given the same level of financial support at present.

Not only does MMC provide a quicker solution, the quality of insulation can produce a home that doesn’t even need central heating – can you imagine not having to pay those bills every month?

MMC can provide solutions to many of our modern problems including climate change and an ageing population. Not only do we not have enough houses, we don’t have suitable homes for our ageing population.

We need innovation to design and build suitable – and attractive – homes for people who are now living much longer.

This includes single-storey, insulated and within a community. The availability of suitable single-storey housing for an ageing population is also on the cusp of crisis. And MMC can provide the design and speed of delivery to solve the crisis before it truly hits us.

In the coming months, the Scottish Government will publish draft legislation including the Warm Homes Bill and the Planning Bill.

One of the aims of the Planning Bill should be to produce a slicker – and fairer – planning system.

And the Warm Homes Bill should be spelling out the standards that builders should be constructing to.

Modern methods of construction are a way in which we can deliver more homes and better homes.

Government should be promoting this and backing it. They should be trying to get the big builders on board because, ultimately, they are the ones who will deliver most of the homes we need.

Mortgage lenders can do their bit too though.

I’ve had a couple of meetings with the Building Societies Association about this. It is encouraging to see the work that they have already done in this space; particularly their 2016 report Laying the foundations for MMC with some clear recommendations, as well as their recent visit to the Netherlands to explore MMC with lenders and valuers. However, this alone is not enough – I believe it is up to all areas of the housing industry to push and actively promote MMC in this way.

Funding sites developed by MMC firms could be one way to show this support –

and I believe Scotland would be a great place to start.

I suppose the key message is that it is a collaborative approach that’s

needed. I believe that it isn’t useful to just wait for government: Because wait for

government and you could wait for a long time.

Next steps:

You can follow Graham on Twitter @GrahamSMSP

How to break free from the ‘housebuilding pool of stagnation’? Reduced emissions, a safer working environment, less wastage and speedier build times. Sound too good to be true? You might think that if this option for house building was available we would grab it and run with it.

“ Government should be promoting this and backing it. They should be trying to get the big builders on board because, ultimately, they are the ones who will deliver most of the homes we need. Mortgage lenders can do their bit too though.”

By GRAHAM SIMPSON, Member of Scottish Parliament (MSP)

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housing

The main takeaway is that lending to older borrowers has increased both in total number of mortgages

and as a proportion of building societies’ lending. Comparing the first half of 2017 with two years earlier, there has been a 45% increase in the number of mortgages building societies sold which will mature when the borrower is 65 or older – just before the BSA launched its 2015 interim report on Lending into retirement, which led to a number of building societies raising or removing their age limits.

Across the sector, this means around 40% of building society mortgage borrowers will be over the age of 65 when their loan matures, up from around a third. The bulk of these are set to mature before the borrower reaches age 70.

At the older end of the scale, there has been a 162% increase in mortgages maturing between ages 79-84 over the same period. While the absolute numbers involved are small – and we wouldn’t want them to become a significant part of the market – this shows that there is demand from some credit-worthy older borrowers to take a mortgage into their eighties.

Whichever of these statistics you choose to focus on, the general trend is inescapable. Older people are both becoming a larger part of the customer base, and a greater percentage of them are taking a mortgage into their retirement years.

Even before the BSA started work in this area, a number of building societies knew this and were taking action. More recently,

Nationwide became the first high-street lender to go back into the equity release market and Family Building Society’s Retirement Lifestyle Booster product won the Mortgage Finance Gazette innovation award. These are just two examples of many around our sector.

What can we expect in 2018? The BSA expects a number of societies will be looking closely at Retirement Interest-Only

(RIO) mortgages. The FCA opened the door wider to these in a consultation earlier in the autumn, published just before the Occasional Paper on an Ageing Population and Financial Services. Our view is that these products are an important bridge between the standard residential market and lifetime mortgage space.

If the right consumer protections are built in, then why shouldn’t a borrower with sufficient retirement income to pay the interest on their mortgage be able to opt to repay the capital from housing equity? Many older borrowers have a secure income stream from a defined benefit pension or annuity.

It won’t be the right option for everyone and most people will still want to have their mortgage paid off. Yet the couple of building societies who already offer RIO mortgages go above and beyond even the standards proposed by the FCA, for example by requiring legal advice in the process or

providing advisors who are also trained in equity release.

Ultimately building societies continue to lead the way in innovating for the needs of our ageing population while keeping consumer protection at heart.

Next steps:

Read the BSA’s Lending into retirement update at bsa.org.uk/LIR2017

By CHARLIE BLAGBROUGH, Policy Officer, BSA

How to break free from the ‘housebuilding pool of stagnation’? Committed readers of Society Matters will know that back in the

Summer 2015 edition I predicted that lending into and in retirement would move from niche lending to mainstream in the years to come. Not one to let a wager go unfulfilled, the BSA released a 2017 Lending into retirement update at our November Annual Lunch, which delves into the trends over the past couple of years.

“ While the absolute numbers involved are small – and we wouldn’t want them to become a significant part of the market – this shows that there is demand from some credit-worthy older borrowers to take a mortgage into their eighties.”

older borrowers

Lending into retirement: an update

Lending into Retirement2017 Update

In 2015 the BSA published its first report on Lending into retirement.

This update shows how the market has developed over the two years since.

With housing market affordability pressures, an ageing population and longer mortgage terms, older borrowers are becoming a larger part of the market.

We predict that the peaks of these demographic and economic trends are yet to come.

To find out more about how building societies do things differently, visit bsa.org.uk

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We catch up with the sector’s recently appointed CEOsIt is interesting to learn how senior leaders come to our sector: what was the initial attraction and why do people tend to stick around or return? With that in mind, we spoke to some of the newest building society CEOs –who all took up their role in 2017.

Chris HarrisonFurness Building Society

“I was delighted to become CEO of Furness Building Society in April 2017 and after running a number of large organisations

across Europe, I have a clear vision of how to take us forward.

The Society’s strong brand and reputation appealed to me and since joining I have been looking at how we can grow and build on our current membership, as well as driving the Society’s products and services into the digital age.

Furness Building Society, and the sector as a whole, needs to drive change to build a faster, more digital and more effective journey for brokers and customers alike. As such,

one of my first tasks as Furness’ CEO was to start a change programme to help move us forward. We’ve already made lots of small improvements to our mortgage process and the support we provide to brokers, resulting in much quicker turnarounds and more efficient processes – but this is just the beginning.

Furness has always prided itself on great customer service, and I’m proud of the role we play in the local community by making charitable donations to a wide

range of causes that matter to our customers. I don’t want to lose that personal touch but we also have to be able to compete in the digital world, where consumers simply want a quick and easy-to-use service.

There’s a lot of hard work ahead and I want to make sure everyone is engaged, motivated and developed to their full potential. There is a great team here and as we move forward we will ensure our long term success and prosperity for generations to come.”

Will CarrollMonmouthshire Building Society

“In the 13 years I have been at Monmouthshire Building Society, I have witnessed great change. Amonst other things the Society has more than doubled its asset

size from £450 million to over £1 billion.

The consistently successful results of the Society have been achieved during what is probably the most testing time in banking for a generation or more.

However, in light of the significant changes in the macro-level environment in which we operate, we are reviewing our strategy to build on the strong foundations already in place to ensure the Society’s continued future success as part of a vibrant building society sector.

I am a strong believer in mutuality and believe that the mutual model creates strong ‘organisational personality’ that is difficult to replicate, particularly within the communities in which societies operate.

The changing face of the financial services industry has led to a shift in power from provider to consumer, with expectations rising. The successful development of flexible, omni-channel, customer-centric propositions combined with the key differentiator of service quality associated with the building

society brand, presents a great opportunity to gain competitive advantage. This enables more people to enjoy the benefits that mutuality offers.

We face some demanding challenges in order to successfully compete and grow in the digital age. I am extremely proud to be given the opportunity to lead Monmouthshire Building Society through the next stage of its journey and I am confident that with the great team I have around me, we can achieve our vision and ensure that the Society prospers for many years to come.”

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insight

We catch up with the sector’s recently appointed CEOs

Karl ElliottBeverley Building Society

“It’s been a pleasure to spend my first three months at Beverley Building Society meeting people from across the sector, listening to their views and ideas on how

we continue to be relevant to our customers.

I have been quickly immersed in the world of Treasury & Credit, experienced our first regulator visit and read countless risk & governance papers – all essential in carrying out my new role.

It is essential to be well governed, managed and financed – but this alone doesn’t define our success. It can tend to dominate the day job, but is only half of what it means to be a successful, thriving building society.

The Beverley’s membership is mainly regional to where we operate and I’m convinced that our future success is grounded in the core purpose that originally defined us; to help those underserved by the market gain financial security through home ownership, funded by savings from across our community.

With a small team, we keep it simple with good value products, an emphasis on customer care and a determination to consider individual’s circumstances on their merits. We want to build long-term value, rather than short-term profit.

Our social purpose demands that we make a positive difference to the lives of our members, their families and their local communities – we are not here just to make money.

There will always be change; regulation, competition and technology won’t stand still and our customers’ needs will continue to evolve, just as they have throughout the past 150 years.

Amidst that change, I believe our long-term sustainability and success will be dependent on remaining true to our purpose.

Simon BeresfordTeachers Building Society

“I am really excited to be back in the building society sector after six years in the City, and it was

a privilege to be appointed Chief Executive of Teachers Building Society from February 2017. Our mission is to help more teachers save for and ultimately own their homes.

We’re proud to be a modern mutual with member service at our core and have made real strides in the last two years to bring our platform into the twenty first century. There is much still to do on this journey; including continuing to invest in service excellence, in our infrastructure

and data capability; and really landing our message with more teachers across the country.

Our core challenges are to keep improving their service experience and to ensure more teachers know about us and benefit from ‘membership’. To support this drive we’re trying some new initiatives, including a Teacher Board made up of educational professionals to help shape our future. We’re also building deeper commercial relationships with key brokers and local schools, businesses and

charities. Government is seeking to help further in this area and we are exploring opportunities to innovate here, as well as already being active supporters of existing affordable housing schemes.

Having worked in two large firms, I was attracted by the challenge of joining a leadership team in a smaller business with a real mission – helping key workers, like teachers, to save to buy a home near where they teach our children. That sense of purpose feels right to me!”

SOCIETY matters

11WINTER 2017 | SOCIETY matters

insight

interview

How did you first get involved with Ecology?I followed the genesis of an idea to create a new building society which would address sustainability issues through one of the eventual founders, Jean Lambert, who is now a Green MEP. We were both part of the growing environmental awareness of the late 1970s driven by ideas of low-impact lifestyles, and books such as Rachel Carson’s “Silent Spring”. The idea of using personal financial decisions to influence the economy for better social and environmental outcomes, as with wider ethical consumerism, resonated strongly with me. In the early days, I used my IT background to help the Society computerise.

Did you plan to stay with Ecology for decades, if not, what made you happy to remain?My early involvement in Ecology was a side-interest, a form of activism, which evolved into consultancy and then full-time employment dealing with IT and Marketing, before I got the opportunity to become CEO. It certainly wasn’t a conscious decision to stay this long, but the idea of values-based financial institutions gained traction, so there was the sense of being part of an exciting new movement. I have to admit that it has become a labour of love.

What is your favourite aspect of being Ecology’s CEO?I love meeting our members and customers. They are inspiring people who have a positive vision for society and want to work for good outcomes for all rather than the few. The variety of projects, and the innovative

ideas they encompass makes every day an opportunity to learn: from housing permanently taken out of speculation, new low-carbon building techniques, woodland creation for biodiversity and organic horticulture, and more.

What is the highlight of your last 25 years at Ecology? What are you most proud of?There have been many successes over the years: our eco-build West Yorkshire office being recognised as one of the ten most sustainable “bank” headquarters in Europe. Our role in driving the uptake of the Passivhaus low-energy concept in Europe as founding members of the Passivhaus Trust. Being told by a leading commentator that our lending was instrumental in kick-starting the demand for green building products in the UK. However, I’m particularly proud of our recent MFG Product Innovation award for our development of a mortgage solution for homes where the sale price is permanently pegged to local incomes, thus countering the negative effects of house price inflation in the overheated London housing market. This is an example of a building society creatively delivering a solution to meet a specific societal need, which I believe is what our movement is for.

Ecology has a focus on ‘greener’ homes – how far has this area come in the past 25 years and where do you see it in another 25 years? In the early days, we were dealing with pioneers. We now see a wider pool of potential borrowers who are more informed

about sustainable building. Unfortunately, recent Government policy changes have reversed the trend towards improving building standards – particularly when it comes to energy efficiency. This runs counter to the approach in other developed countries so I expect this to be a blip. In the short term, I remain concerned that Brexit may mean important policy gains on support for energy efficiency and a low-carbon economy will be lost.

What’s been your biggest challenge or opportunity at Ecology?Since the financial crisis, it has felt that we have been subject to a wave of regulation of Tsunami-like proportions. We recognise it is the price of doing business, so we are investing in our people, systems and data capabilities so we can continue to meet the needs of our members while satisfying regulators’ demands.

I’m also excited by the opportunity presented by the rise of fintech, which is transforming financial services and creating new channels for organisations to engage with their customers. We are looking at ways that we can harness the power of technology to facilitate that contact and respond to a new generation of customer, while remaining accessible to all.

What do you feel we could learn from our European neighbours when it comes to housing, and has anything you’ve learned made it into Ecology’s policy or culture?Since mortgage markets and legal structures differ widely between jurisdictions, I think we should always be careful about reading

2017 marks Paul Ellis’ 25th year at the Ecology – and his 22nd as Chief Executive. Here we learn a little more about Paul’s experiences in the sector and Ecology’s story and focus.

Paul Ellis celebrates 25 years at Ecology Building Society

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12 SOCIETY matters | WINTER 2017

SOCIETY matters

interview

over to the UK context. That mistake was made pre-financial crisis with policy attempts at importing US energy efficiency mortgage concepts.

Nevertheless, there tends to be a more interventionist/enabling approach from many of our European neighbours, with good policy outcomes. In Germany, community-led housing plays a much bigger part in housing provision than is yet the case in the UK. Here, there is openness to the role of democratically organised baugruppe housing co-operatives leading to a greater role in tackling issues of affordability.

The Netherlands shows that regulatory recognition of the influence of energy-saving measures on mortgage risk can lead to them being included as an option in mainstream mortgage products: therefore maximum LTVs are mandated by law and are higher for energy-efficient properties.

Ecology has lent to housing co-operatives since inception, and encouraged the use of new low-embodied energy materials. We have been encouraged by cities like Almere to make a stronger push to encourage off-site construction and support adaptable housing – something our members have raised with us.

What do you think is the most important focus for financial services in the next five years?I believe that financial services have a critical role in helping to tackle climate change. We are already seeing the European Parliament considering capital reliefs to incentivise sustainable finance. A concerted response is essential to the maintenance of a sustainable economy, environment and the democratic processes that underpin the good society. For a start, in the UK, we have hardly begun the task of retrofitting 26 million homes to help us meet our Paris targets and lenders will have an important part to play, to deliver this.

If you had one wish for the future of the housing industry, what would it be?I’d like environmental issues to become more of a focus, including the wider sustainability of housing developments. Energy efficiency should be engineered into housing development so it becomes more of a manufacturing process – which means off-site – and that modern methods of construction become traditional methods of construction, and commonplace.

Finally, what do you think your legacy will be? When it’s time for me to move on, I would hope that our commitment to the environment and fair finance is sufficiently engrained in our statutes, culture and processes that it is naturally carried on by the next generation of colleagues. By sticking to our core mission and purpose, they will be able to maintain Ecology’s continued resilient success.

Typical working day

8.15amLeave home in the north of Leeds to drive to work – I’m fortunately going against most of the traffic.

Listen to the Today programme, where I hear more about the latest difficulties with implementing Brexit.

9amArrive at Ecology’s eco-built offices in Silsden and plug in my Toyota Prius to our charging point.

9.30amWeekly Executive meeting with the Finance Director and Chief Operating Officer.

10amMeeting with our IT Manager to discuss the planning for the latest phase of our digital strategy.

11amI catch-up on a few emails and then I meet with Ecology’s External Affairs Manager to look at our plans for our next AGM. The focus will be on community-led housing. It takes place in a different location each year to ensure as many members as possible have the opportunity to attend.

1.15pmFor lunch I’ve brought some leftovers from last night’s evening meal into the office. I’ll also pick some of the last raspberries from the Ecology garden. This year’s warm and wet summer resulted in a bumper crop of vegetables and fruit.

In the kitchen I bump into our Risk and Ethics Manager who tells me that our Fair Tax Mark accreditation has just been renewed for another year.

2pmI get to see the final draft of our latest members’ newsletter. It’s looking good and just needs a few tweaks.

3pmIt’s time for me to read through the latest source book report in preparation for my telephone call with the PRA later this afternoon.

5pmThe call with the PRA has gone well. There are a few things to follow-up but it’s clear that they now have a better understanding of what makes us different.

7.30pmAfter catching up on my French homework for my night school course, I’ll have to start preparing the accounts for Friends of Gledhow Valley Woods where I’m treasurer.

“ In the early days, we were dealing with pioneers. We now see a wider pool of potential borrowers who are more informed about sustainable building.”

Ecology Building Society’s eco-built office in Silsden, West Yorkshire

SOCIETY matters

13WINTER 2017 | SOCIETY matters

legislation

There are three stages to the offence:

• Stage 1 is the criminal tax evasion by a taxpayer under existing law.

• Stage 2 is the criminal facilitation of this offence by an “Associated Person” i.e. an employee or anyone else who performs services for or on behalf of the building society.

• Stage 3 arises if the Society fails to prevent its representative from committing the criminal act at Stage 2.

The only defence a Society would have is that it had ‘reasonable procedures’ in place to prevent the Stage 2 action.

Without having developed any reasonable procedures defence, Societies will risk being found guilty of a strict liability offence and an unlimited fine. HMRC is not expecting ‘paranoid’ procedures however, it is expecting Societies to implement reasonable procedures following a detailed risk assessment.

Steps to assist in the development of reasonable procedures:• Initiation: It is first important to

understand the legislation and guidance which should help identify the key people within your Society who need to be involved. This legislation is driven by the government’s desire to clamp down on tax evasion but is fundamentally about business conduct and therefore you should consider financial crime and/or compliance and who should lead the project, working alongside your tax team. The project team will have personnel drawn from all relevant functions.

• Mobilisation: You should conduct a risk assessment. This is critical; if this is not done well, you will have no chance of showing that your procedures meet the statutory test of being ‘reasonable in all the circumstances’. This assessment should review the entire business operations,

including business support functions. Make sure the scope is also wide enough to include a consideration of who your Associated Persons might be. The six pillars in the final HMRC guidance include ensuring you have appropriate due diligence in relation to associated persons, so do not restrict your efforts to your own employees.

• Implementation: Using the risk assessment, map out the procedures you will need in order to meet the statutory test. Undertake a gap analysis to identify where you need to introduce new controls or enhancements to existing ones, such as your existing KYC and anti-money laundering controls and procedures. Crosscheck your plans against HMRC’s and UK Finance’s CCO guidance, plus HMRC’s Code of Practice on Taxation for Banks. You will need to implement required system changes, policy and procedure updates as well as developing and delivering relevant staff training.

Make sure you deliver your implementation project in a reasonable timeframe.

• Monitoring: After undertaking the above, monitoring will be required to confirm your controls and procedures are operating effectively and relevant changes are accounted for. You need to be alert to changes in the guidance and learn from experience including any legal cases so that you can show continuous improvement in your systems.

Ultimately, the test will be whether you can demonstrate that your procedures were reasonable at a particular date. So, at each of the stages which have been set out, maintain an accessible record of everything you do and why.

Next steps:

For more information or if you have any questions on the Criminal Finances Act, please contact James on 0207 311 6514 or Richard on 0113 231 3936.

The Criminal Finances Act makes failing to prevent the facilitation of tax evasion a corporate criminal offence. This legislation came into effect on the 30 September 2017. Here we explore what that means for building societies, and steps they can take to prevent being convicted of this new offence.

Tax evasion: the latest legislation and how to prevent your organisation falling foul

TAX EVASION

By JAMES SISWICK, Partner – Risk Consulting & RICHARD LITTLE, Partner – Tax, KPMG

14 SOCIETY matters | WINTER 2017

SOCIETY matters

Next steps:

Follow @BSABuildingSocs on Twitter to keep up to date with the BSA, our members and the wider sector.

Key political challenges for the sector in 2017:

BSA members across the UK.

44 building societies and

4 credit unions

the number of people BSA members employ

42,640

There are c.1,550 BSA member branches across the UK

1,550

Building society savers received

£380mortgages sold which will mature when

a borrower is 65+ (H1 2017) Up 45% from H1 2015

59,668

of all mortgages across the market in the last year

30%

Brexit: This continues to pose challenges for the political and economic landscape, which will naturally have an impact on the building society sector. There are also opportunities for the sector after Brexit relating to more proportionate regulation.

Supporting housebuilding: The Government continues to increase its targets for housebuilding, but it needs to deliver. The sector can play its role in supporting housebuilding by lending on a wider variety of construction types, including self and custom build and modern methods of construction.

Political uncertainty: The uncertain nature of politics at the moment is requiring the sector to keep its political engagement under review.

Clean Growth Strategy: The agenda to use housing to help the decarbonisation agenda continues and this will require more engagement from the sector over the coming year.

48

million

3

4

2

1

BSA members in numbers: 20172017 was another great year for building societies and credit unions. Here’s some of the numbers that build the bigger picture.

Building societies approved

more interest in the first half of 2017 than they would have received from big banks

of building society members would recommend their building

society to friends/ family

– compared with 69% of bank customers

82%

first-time buyer mortgages approved by building societies in the last year

111,000

For people, not shareholders.

Our 44 building societies and 4 credit unions work for people, not shareholders. They come in multiple shapes and sizes but are all experts on mortgages and savings. Find out more here: bsa.org.uk/forpeople

people are members of a building society… that’s a third of the population!

million23

15WINTER 2017 | SOCIETY matters

overviewSOCIETY matters

Next steps:

For more information or to register to attend, visit bsa.org.uk/events

Dates for your diaryKnowledge sharing and educational events for building societies. Many of our events are also open to other financial service providers.

Mortgage UnderwritingDates to be arranged subject to demand, London

In recent years the recognised career path to mortgage underwriter has changed substantially, partly due to the changing nature of mortgage advice. This brand new intensive two-day course has been designed to fully equip underwriters with the knowledge required to carry out their role effectively.

On completion of this programme delegates will be fully conversant with the full range of skills to underwrite mortgages effectively, while ensuring that customers’ needs are met.

Open to: BSA members and Associate members

Members/Associates: £895 (VAT exempt)

Cost includes course documentation, lunch and refreshments

BSA Associates meeting18 January 2018, London

The objective of this free-to-attend meeting is to help BSA Associate members understand what it is like to work with building societies, the business conditions facing mutuals and how they are reacting to market changes.

Free to attend for BSA Associate members

Treasury risk management8 February 2018, London

The objective of this course is to provide participants with an overview of the financial and balance sheet risks a building society faces as a consequence of being a mortgage lender and how these risks are managed by the treasury function.We will consider key risks such as liquidity risk, credit risk, market risk and interest rate risk within the new regulatory framework, and examine the role of board governance and the relevant committees, focusing on the Asset and Liabilities Committee. Additionally, we will discuss ‘best in class’ management information and how to read and understand key reports.

The course is aimed at those with some treasury experience, or those wishing to improve their treasury risk understanding.

Open to: BSA members and Associate members: £490 per delegate (VAT exempt)

Non-members: £590 per delegate (VAT exempt)

The cost includes course documentation, lunch and refreshments

Crisis PR in the digital age23 January 2018, London

The reputation of your society or credit union is one of your major assets. Your reputation affects whether you retain existing members and recruit new ones. When an issue arises or a crisis hits, the way that you as communicators handle it can make the difference between enhancing your society’s reputation and losing it. Social media adds an extra dimension, in how far and how fast stories spread.

Open to: BSA members and Associate members

£550 per delegate (VAT exempt)

The cost includes course documentation, lunch and refreshments

Mortgage brokers seminar22 February 2018, London

Keeping track of developments in the broker world is becoming increasingly challenging, with new business models and cutting-edge technology appearing all the time. How building societies respond to these challenges will be just as important as understanding the implications of a whole raft of regulatory changes over the past year, with yet more to come.

Open to: BSA members and Associate members £350 per delegate (VAT exempt)

Non-member organisations £450 per delegate (VAT exempt)

The cost includes course documentation, lunch and refreshments

BSA Annual Conference 201823 & 24 May 2018, Manchester

Our annual conference is the biggest event in our calendar attracting over 600 delegates to network and hear about the key issues facing our sector through thought-leading keynotes, discussions, exhibition floor and social events.

In addition to the core programme we are planning fringe events including a meeting for CEOs and a networking dinner for NEDs. Check back here early in 2018 for full programme details or joining our evens mailing list and we’ll keep you informed.

16 SOCIETY matters | WINTER 2017

SOCIETY matters

diary