Building Societies (Hansard, 6 November 1996)

§ Ms Lynne
To ask the Chancellor of the Exchequer what meetings he(a) has held and (b) proposes to hold with organisations of, or representing, disabled people to discuss the impact of building societies converting to banks and issuing bonus shares to members. [2307]

§ Mrs. Angela Knight
Treasury Ministers have received no requests for meetings from such groups.

§ Mr. French
To ask the Chancellor of the Exchequer if he will announce the outcome of the consultation on the draft Building Societies Bill. [3219]

§ Mrs. Knight
Following the publication of the draft Building Societies Bill in March, the Government received responses from societies, from other professionals and from individual customers, all of which helped to highlight the concerns of those involved with societies. I will publish shortly a final version of the Bill, reflecting the outcome of the consultation.
The draft Bill contains three major changes to the existing legislation. It replaces the current prescriptive regime for societies with a modern, permissive framework, which—subject to a few necessary exceptions—allows societies and their members to decide what businesses to engage in. It updates the arrangements for prudential supervision by the Building Societies Commission, and it modernises and enhances societies' accountability to their members. The draft Bill received a general welcome from societies and other respondents.
A number of the comments received were technical, and have helped to produce a better Bill. I am grateful for the work which respondents put into formulating their comments, which demonstrates the value of consulting on draft legislation.
Some attractive ideas have been suggested which will be included in the new Bill. The principal changes are as follows: Protection against takeover from converted societies The 1986 Act provides that for five years after a society converts to a plc, no one may hold over 15 per cent. of its shares. This may be waived by the Bank of England, in certain circumstances. Some respondents asked us to remove this protection; others to keep it. 540W The draft Bill will provide for the protection to lapse if, during the five years, the converted society takes over another financial institution, or if its shareholders vote to waive it. If enacted, this change would apply to any converted society still within its five year period. Deposit accounts The draft published in March proposed that every individual who saved with a society should be a member. There would be some exceptions, for example current account holders. The previous draft would have required societies to freeze individuals' deposit accounts operating at the time of enactment. Individuals would not have been able to put new money in those accounts. I have decided to change these provisions so that further money can be put in existing deposit accounts, provided the account holder is given the choice of keeping that account or transferring to a share account with comparable terms. All new savings accounts will still have to be membership accounts. The new draft Bill will also provide that after a society has announced its intention to put a takeover or conversion proposal to its members, it may offer deposit accounts. Special general meetings The draft published in March proposed a statutory right for members to requisition a special general meeting. This right has existed in societies' rules for some time. In transposing this into law, the draft would have preserved societies' ability to set thresholds for share holdings, borrowing and length of membership for those who can exercise this right. The new draft Bill retains these provisions, and furthermore will not put a society under a statutory obligation to hold a meeting within the three months before and one month after the annual general meeting. A duly requisitioned SGM would still have to be held at another time. A society could arrange to hold the SGM and AGM on the same day if it wished. Access to the register of members The new Bill will restrict the existing statutory right to apply to the Building Societies Commission for access to a society's register. This right will generally be restricted to members of at least two years' standing, and with a share holding balance or mortgage debt, of at least £100. A fee of £25 will be payable to the BSC with each application, and successful applicants will be required to respect the confidentiality of names and addresses taken from the register. Priority Liquidation Distribution Right The 1986 Act creates a residual priority liquidation distribution right for former members of a converted society. This comes into play should a converted institution subsequently fail, and relates to share accounts held at the time of the conversion. Each person's entitlement is initially equal to a percentage of his share holding at the time of conversion, but it runs down as withdrawals are made, with no increase from subsequent deposits. Because of this provision, converted societies often have to raise extra capital, and face additional costs and administrative burdens. As societies proposing a change of status now offer substantial benefits to eligible members on conversion—effectively capitalising the reserves at that time—this additional protection seems unnecessary. And the cost of providing for it disadvantages new shareholders and customers. So the new draft Bill will remove this burden. If enacted, the repeal of this provision would apply to all societies whose business is transferred to a successor company after today's date, provided that the members had been warned in the relevant transfer statement of the possible abolition of the right. Mergers, conversions and takeovers The new draft Bill will include proposals modifying the procedures for conversion and takeover, while keeping necessary protection for members. It will allow societies to 541W send members a short version of the transfer statement, provided the full version is available to members who request it, The 1986 Act arrangements for takeovers or mergers are cumbersome for a society in serious difficulty. All mergers and takeovers require a vote of the members of a society being absorbed. Invoking such a procedure during a rescue would be impractical. Although such circumstances may arise only very infrequently, the new draft Bill will give the BSC the power to direct a society in extremis to seek a merger or takeover, and to allow a merger or takeover to proceed by board resolution only, so that an ailing society's business can be taken over by another society or a bank, without the disruption that a full public proposal would cause. Deposit and Investor Protection Finally, the draft Bill will contain an enabling power to merge, at a point in the future, the banks' deposit and societies' investor protection schemes. This is solely a contingency provision, should it ever become necessary at some point in the future.