BoE's Gerken on mutuals: Growth needs strong risk management
Bank of England Executive Director Charlotte Gerken outlined progress in mutual supervision at the Building Societies Annual Conference. She detailed regulatory changes and highlighted ongoing challenges for building societies and credit unions.
Tailored rules for mutuals
The Prudential Regulation Authority (PRA) has advanced a more proportionate framework for mutuals.
This includes withdrawing the Building Societies Sourcebook (SS20/15) on December 5, 2025, granting societies greater flexibility in risk management and reducing costs.
The joint PRA/FCA Scale Up Unit is now operational, supporting firms in navigating regulatory processes; a building society is among its first participants.
Regulators have also eased growth constraints by increasing the de minimis threshold for Loan-to-Income (LTI) flow limits and consulting on removing the firm-level 15% cap on high LTI lending, while preserving market-wide limits for financial stability.
The PRA and FCA are further reviewing the regulatory regime for credit unions that have grown significantly or undertake complex activities, aiming to ensure the framework keeps pace with their evolving size and complexity.
These measures streamline regulation and adapt supervision to the mutual sector's diverse business models.
Navigating capital and cost pressures
The PRA and the Bank of England's Financial Policy Committee are refreshing the capital framework for building societies, aiming for greater predictability.
All eligible building societies have adopted the Strong and Simple framework, which includes simplified liquidity and targeted capital adjustments for Small Domestic Deposit Takers (SDDTs).
The PRA expects to communicate the outcome of an off-cycle review of firms' Pillar 2 requirements in Q3 2026, with changes effective January 1, 2027.
Persistent operating cost pressures, especially for smaller organisations, remain a key challenge.
The PRA encourages societies to explore closer working and shared services to achieve efficiencies and support innovation.
Supervisory intensity will vary more across societies, reflecting the most pressing risks to safety and soundness.