PRA CP11/25 — Removing the Building Society Sourcebook

At the Building Societies Association (BSA) Conference on 8 May, Charlotte Gerken outlined the PRA’s proposal (CP11/25) to remove SS20/15, also known as the “Building Society Sourcebook”. The intention is that this will level the regulatory playing field between banks and building societies and support the growth and competitiveness of the mutuals sector.

To recap, SS20/15 was introduced in 2015 and sets out the PRA’s expectations for building societies’ compliance with the requirements of the Building Societies Act 1986, the Financial Services and Markets Act 2000, the PRA Rulebook and SS24/15 (the PRA’s approach to supervising liquidity and funding risks). It applies to all building societies and is cross referenced in SS2/23: Supervising Credit Unions.

Following a review of SS20/15, which included consultation with the BSA and UK Finance, the PRA has concluded that:

• The expectations set out in SS20/15 are no longer consistent with its broader policy approach;
• SS20/15 imposes prescriptive expectations on building societies resulting in a “level playing field” issue as banks are not subject to the same requirements/expectations; and
• Risk management in the building societies sector has become more sophisticated since 2015 and the PRA now has other tools and mechanisms through which it can supervise a firm’s risk management. For example, the Senior Managers and Certification Regime (SMCR) — also introduced in 2015 — has had a positive impact, delivering a clearer allocation of prescribed responsibilities for the management of risks.

• Will assist building societies to compete and grow in the UK market – as similar expectations do not exist for banks, their withdrawal would boost the ability of societies to compete in the UK banking sector;
• May encourage societies to grow by adapting their risk strategies to respond better to changing market conditions;
• Will provide clear business and economic benefits by allowing greater flexibility for treasury assets and funding, facilitating more efficient management of the treasury portfolio; and
• Will not result in costs on the sector.

• Boards will continue to be responsible for overseeing the development and maintenance of robust risk management processes proportionate to the nature and scale of a society’s business model and which meet the requirements set out in the Risk Control Part of the PRA rulebook.
• It will be for each society to determine its own financial risk management framework, tailored to its business model and based on board approved risk appetite, policies, risk management, systems capabilities and management expertise.
• The PRA will continue to assess risk management, board effectiveness and societies’ ICAAPs and ILAAPs against its risk model. Resilience and vulnerabilities will be assessed under a range of scenarios and via periodic thematic and firm — specific asset quality reviews.
• The PRA may also decide to apply “appropriate supervisory tools” where supervisors judge a firm’s risk management or governance to be below expectations.
• The PRA acknowledges that removal of SS20/15 may lead to greater risk — taking in building societies which will need to be appropriately managed, to avoid costs in terms of safety and soundness.

• Stakeholders have until 8 August to respond to the consultation.
• If agreed, the change would take effect from 1 January 2026.
• The removal of SS20/15 would not require any changes to the PRA rulebook.
• Cross references in SS2/23 would be removed next time the PRA updates the SS.

Please reach out to KPMG in the UK’s regulatory team if you would like to discuss the PRA’s proposal in more detail.