Prudential Regulation Authority Rulebook

1.1

This Supervisory Statement (SS)^[1] sets out the Prudential Regulation Authority’s (PRA’s) expectations in respect of building societies’ compliance with the requirements of the Building Societies Act 1986 (the 1986 Act), the Financial Services and Markets Act 2000 (FSMA), the PRA Rulebook and SS24/15.^[2] This SS is applicable to all building societies.

1.2

The purpose of this SS is to set out the PRA’s approach to its supervision of building societies’ lending and treasury activities. The SS aims to build on the principle that the risk appetites of building societies should be properly aligned to their risk capacity, in order to promote the safety and soundness of building societies as deposit-taking institutions.

1.3

The SS describes the key lending and treasury risks to which societies are exposed, and sets out a framework describing different potential models (‘approaches’) for managing and controlling these risks. There are three approaches for lending (‘Traditional’, ‘Limited’, ‘Mitigated’) and four approaches for treasury (‘Administered’, ‘Matched’, ‘Extended’, ‘Comprehensive’).

1.4

The SS is designed to provide clarity on supervisory expectations for the risk management characteristics and organisation that should be in place commensurate with the level and types of risk taken by each building society. The PRA expects each building society to adopt the approaches (lending and treasury) that are most appropriate to its business model and risk management capabilities, recognising that the small scale of some building societies may preclude having a separate risk management function – and therefore limit the types of activities that they can undertake prudently.