Introduction

Thank you to the Building Societies Association for inviting me to your conference here in Edinburgh. In spite of our name, the Bank of England’s links with Scotland go back to our roots, with the Scottish financier and economic thinker William Paterson being a founding member of the Bank in 1694^[1].

At your conference in Birmingham last year, I spoke about the importance of effective risk management in promoting sustainable growth, and how the PRA was adapting its policy and supervisory approach^[2]. Today, I want to return to that theme, setting out where we intend to go next in terms of following up last year’s Mutuals Landscape report, what the PRA has delivered in terms of changes in supervision and policy, and the sector’s own role in promoting growth against a challenging and changeable economic backdrop.

The Mutuals Landscape Report

In December last year, the PRA and FCA published the Mutuals Landscape report. This report, commissioned by the Economic Secretary to the Treasury, highlighted the important contribution deposit taking and insurance mutuals make to the UK economy. It also discussed the challenges they face and the role that regulators can play in addressing them. The report built on actions taken to improve the landscape for mutuals and was informed by extensive engagement across the sector.

Progress on a more proportionate prudential framework

At last year’s conference, I announced our proposal to withdraw the Building Societies Sourcebook, SS20/15. Thank you for engaging in the consultation, following which we confirmed our final policy and withdrew SS20/15 on 5 December 2025. Societies now have greater flexibility – and the corresponding responsibility – to ensure risk management reflects their business models and governance. By removing prescriptive limits and prenotification requirements, we have reduced costs for firms and recognised the stronger capabilities that now exist across the sector. This has also enabled our supervision to be more proportionate and responsive to risk.

Firms have also told us that as they grow they sometimes need additional support, for example in navigating regulatory processes or understanding the impact of new policy proposals. In response, the joint PRA/FCA Scale Up Unit is now in place, and I am pleased to say that a building society is among its first participants. We expect to invite a second group of deposit takers to participate later this year.

The PRA and FCA have also acted to ease constraints on growth, increasing the de minimis threshold for LTI flow limits last July, and earlier this month, consulted on removing the firm-level 15% cap on high loan-to-income lending, while preserving market-wide limits to support financial stability.

These measures serve to reduce regulatory constraints on building societies’ growth. In the credit unions sector, the PRA and FCA are reviewing whether the current regulatory regime remains appropriate as a small number of credit unions have grown significantly, operating balance sheets similar in size to those of smaller building societies.

Some are also undertaking more complex activities than was envisaged under the original legislation. Our aim is to ensure that our credit union regulatory framework keeps pace with greater size and complexity in the sector, while ensuring there is appropriate proportionality. We will be engaging with the sector later in the year to explore some of these issues further. We strongly encourage credit unions, other mutuals and representative bodies to engage with us on this.

Key areas remain in need of our shared attention that I would like to highlight today: building societies’ capital planning and cost challenges.

Capital predictability

The sector’s capital position is strong, with many societies holding capital well above regulatory requirements (chart 1). Given the reliance on internally generated capital, a prudent approach to capital management is essential to help societies navigate unexpected events and invest for the future. But we hear that uncertainty over capital requirements can weigh on firms' confidence in formulating growth plans and cause smaller firms to hold greater precautionary buffers than are really necessary. That is why the PRA and the Bank of England’s Financial Policy Committee are refreshing the capital framework reaffirming both the purpose of buffers and their usability in stress. Alongside this, work is ongoing in areas of particular relevance to building societies, including changes to the leverage framework, further consideration of how domestic capital requirements interact, and the calibration of thresholds^{[3] [4]}.

When I spoke to you last year, the first phase of the Strong and Simple framework was already embedded, including simplified liquidity requirements and reduced liquidity reporting. Since then, we have issued PS20/25 completing the framework with targeted adjustments to capital and reporting for Small Domestic Deposit Takers (SDDTs). This will make capital requirements more certain and give firms greater confidence to use surplus capital to support their ambitions. And I am pleased to say all eligible building societies have now chosen to join the Strong and Simple framework and become SDDT firms (chart 2). We have now received your data to undertake an off-cycle review of firms’ Pillar 2 requirements, and we expect to communicate the outcome of this work in the third quarter of 2026, with changes taking effect from 1 January 2027.

Broadening the availability of external capital may also help ease pressure on firms that currently feel the need to hold very large buffers. While Core Capital Deferred Shares have worked well as capital instruments, we hear that greater scale could increase their attractiveness to investors. We welcome suggestions from societies and trade associations on how the range of capital options available to the sector might be improved.

Cost challenges

The second theme is the persistent pressure on operating costs, including from implementing significant IT programmes or the need to attract key personnel. This is particularly challenging for smaller organisations. Some building societies have responded by rethinking their operating models or investing in new technology. There are examples of societies broadening the services available through branches, or using community hubs or digital channels to meet members’ needs.

There may be real value in societies sharing experience or exploring closer working. Some building societies already provide services to other firms, such as providing back-office functions or providing mechanisms for building societies to come together to provide lending. In the credit union sector, we have clarified the rules around shared service undertakings, which allow groups of credit unions to share the costs of operational or compliance functions and achieve economies of scale. These changes are intended to support growth and innovation, while delivering cost efficiencies. We would be open to exploring any similar plans from within the building society sector. All firms will need to keep investing to meet customer expectations, strengthen resilience and improve operational effectiveness.

Our supervisory approach

I am well aware that supervision places indirect as well as direct costs on the sector. We are taking steps to streamline our supervisory approach: for example, organising our supervision of non-systemic mutual deposit takers into one division, led from our Leeds office to ensure supervisory consistency and efficiency. We have also announced changes to streamline our work by moving all supervisory activity onto a two-year cycle. In parallel, we are reviewing our approach to building society supervision so that we can better prioritise the most material risks to safety and soundness. This means supervisory intensity will vary more across societies, and over time, reflecting our assessment of the most pressing risks to our objectives.

Our supervisory approach is underpinned by timely, high-quality and relevant data. The PRA’s Future Banking Data programme launched last year, is reviewing our strategic approach to regulatory reporting. Our aim is to improve the data we collect to support our supervisory and policy-making work, while delivering tangible cost reductions for firms. We have already stopped collecting 37 data templates in a first phase of deletions and we anticipate making further deletions. The programme is also supporting a more efficient service to firms including through testing a new firm‑facing portal to support the submission of applications for certain regulatory transactions. We have also launched a feasibility study to assess how in the future we could streamline our mortgage data collections. I encourage you to read and respond to our recently published discussion paper setting out our wider vision for the future of banking data.

Sustainable growth

Effective and proportionate regulation and supervision play an important role in facilitating sustainable growth, and the PRA has made changes to ensure that regulation remains proportionate as the sector evolves. For example, the withdrawal of the Sourcebook and the removal of the firm level cap on the flow of high LTI lending. But building societies themselves play the main role.

One supervisory principle that has not and will not change is that a building society’s risk appetite should be aligned with its capacity to manage risk effectively. Boards should understand that risk appetite clearly, monitor it appropriately, challenge management where necessary, and ensure risk management keeps pace with changes in the size or make-up of the balance sheet. From our supervisory core assurance work, it is clear that some societies need reminding that while growth into higher risk lending can increase the average level of return, it can also increase the volatility of those returns.

And this is in the context of challenging macroeconomic conditions for businesses and individuals. At present, households remain broadly resilient. Competition in mortgage markets is strong and while societies’ net interest margins look stable, maintaining them could be challenging looking ahead (chart 3). Last month, the Financial Policy Committee’s assessment noted that while the financial system has been resilient so far, the conflict in the Middle East has delivered a substantial negative supply shock to the global economy and triggered significant market reactions. The global economy is more unpredictable, following a period in which risks were already elevated. This increases the possibility of large, frequent and overlapping shocks and periods of intense volatility^[5].

The 2008 financial crisis showed us how global macroeconomic and financial headwinds add to pressures on struggling firms, including in that case the failure of Dunfermline Building Society. If the sector is to grow sustainably, it is essential you maintain the progress you have made in governance and risk management since that time. What was prudent one or two years ago may no longer be so, particularly where risk appetite has increased.

As such, building societies that seek to grow in scale and ambition will need to show that their risk management is keeping pace with the risks they choose to take on.

Conclusion

With the actions we have taken, and as we work on the themes in the Mutuals Landscape report, I believe the building society sector has more scope to set its own pace, and that will depend on strong governance, effective risk management and open engagement with supervisors.

I also believe there is more scope to work together. There are real gains to be made from sharing experience and expertise across the sector, and from looking at where working together – whether through shared services or the work of trade bodies – can help strengthen resilience and support efficiency. Such sharing can span the mutuals sector, and I encourage building societies and credit unions, and their trade bodies, to look for areas where a cross-pollination of help and ideas might prove fruitful.

The PRA will continue to work closely with colleagues at the FCA to ensure a joined-up approach to supervising and supporting mutuals, as well as with government and other stakeholders. As the BSA takes forward its strategic thinking for the sector, we look forward to continued engagement with the building society sector on how it is working to achieve long term sustainable growth.

I would like to thank Danny Fikret, Simon Debbage and Lucy Canham for their help in drafting these remarks. I would also like to thank Monica Dutt, Laura Wallis, Jacqui Ashe, Rebecca Jackson and Phil Evans for their contribution.

Charts

Chart 1: Aggregate CET1 capital position

CET1 targets exceed regulatory minimum requirements across the sector

• Source: PRA regulatory returns (COREP)

Chart 2: Adoption of the Strong and Simple Framework

67 SDDTs, including 36 Building Societies, have opted in to the regime

• Source: 2026 Q1 PRA Authorisations Data

References

1. Why was the Bank of England founded? | Bank of England ↑

2. Mutual momentum: Advances in Building Society regulation - speech by Charlotte Gerken | Bank of England ↑

3. Prudential Regulation Authority, PS22/25 – Leverage Ratio: Changes to the retail deposits threshold for application of the requirement, November 2025 ↑

4. Prudential Regulation Authority, Strong and Simple framework – Small Domestic Deposit Takers (SDDTs), Strong and simple ↑

5. Financial Stability Report - December 2025 | Bank of England ↑