Our members are at the heart of everything we do. Each year, we ask members to submit questions to us in advance of the Annual General Meeting.
The key subject areas raised by members in advance of the 2019 AGM are covered below:
Is the Society still in a very healthy financial state?
As set out in the Annual Review & Summary Financial Statement sent to all members and available on the Society’s website, the Society has continued to maintain its financial strength during the year to 31 January 2019. We remain profitable and have maintained capital and liquidity ratios in line with other building societies of a similar size. The Society regularly conducts stress testing exercises covering a number of scenarios. All scenarios modelled show that we continue to be well placed to withstand any further shocks in the financial markets and the wider economy.
Is the money from savers spent entirely on residential mortgages? Where do you invest the Society’s funds?
The vast majority of the money received from savers is lent out to individuals as funds for residential mortgages. We do very little lending which is classed as ‘commercial’ and that is mainly to solicitor firms, other professional practices and guest houses.
The remainder of the Society’s funds are held as ‘liquid assets’ which have to be available at immediate or short notice so that they can be used to repay savers. These funds are therefore invested largely with the Bank of England, and some with high-street banks and other financial institutions.
Why have costs increased? What steps are you taking to manage costs? Has the Society considered outsourcing key functions (perhaps to an offshore company) to lower costs?
The Board is aware that the Society’s costs are above the average of other building societies. In order to provide a service to our members across Scotland, we need to maintain a network of branches and agencies across a large geographical area. We have also continued to invest in technology to further develop our service to members, keep member data safe and to provide members with additional services such as online capability.
It is also important that we continue to attract and retain suitably qualified and experienced staff, both to help us develop the business and to help us cope with key areas of additional regulation.
The Society has already outsourced key IT operations to a third-party supplier and the Internal Audit function is also outsourced. Both these suppliers are UK-based as the Directors do not feel that outsourcing offshore is appropriate for a locally-based UK building society in terms of quality control.
Board of Directors
What are the criteria used in the appointment of Non-Executive Directors – number, method of selection, length of appointment etc – and who vets prospective appointees?
The Society believes it must maintain a balance between the number of Non- Executive Directors and the workload required of it. The process for appointment of Non-Executive Directors is summarised in the Corporate Governance section of the Report & Accounts. The process is overseen by the Society’s Nomination & Remuneration Committee which carefully considers the final shortlist before making a recommendation to the full Board – and successful candidates may also be subject to additional vetting and approval by the financial services regulators, who expect Non-Executives to have a reasonable knowledge of how the sector operates.
What efforts are being made to encourage greater diversity on the Board, including more women and people from ethnic minorities?
The Society is keen to support diversity at all levels within the organisation and, when vacancies arise, applications are encouraged from all suitably qualified candidates, based on the specific skills and experience required. When recruiting for the most recent Non-Executive vacancies, following a clear and impartial process involving a professional search agency, appointments were made entirely on merit, with no bias regarding gender or ethnic origin.
How much time/number of meetings do Non-Executive Directors spend on Society business and how many meetings has each Non-Executive Director attended in the last year?
A detailed record of Directors’ attendance at formal meetings is shown in full in the Report & Accounts and in the Annual Review booklet. Attendance at Board & Committee meetings will average approximately two days a month in total and at least as much time again is normally taken by each Non-Executive Director in preparation for the meetings.
Non-Executive Directors must be able to demonstrate that there is no conflict with other roles and that they can allocate sufficient time to their role at the Society.
Directors also attend external conferences, courses and seminars over the course of the year, resulting in a time commitment of at least 3-4 days per month. The time commitment for the Chairman and Vice Chairman is considerably more.
How well do Non-Executive Directors understand the business? Where Directors refer to holding fellowship of a professional institute, are they qualified by examination?
All of the current Board members have appropriate professional qualifications. Our Board has an abundance of experience in the financial services industry and fully understands the Society’s business and the markets in which we operate.
Should all Directors stand for re-election every year?
Under the Society’s Rules, Directors must stand for re-election at least every three years, but the combined effect of different aspects of the Rules means that often Directors will stand more frequently than that.
In the interests of good governance and having regard to the provisions of the revised UK Corporate Governance Code 2018, it is expected that, where appropriate, Directors will stand for re-election at each AGM.
Should Directors’ remuneration be more directly linked to the interest rate payable to savers in the Society, which have remained at historically low levels for such a lengthy period? How do changes to remuneration for Directors and senior managers compare with changes for more junior staff?
There is a full Directors’ Remuneration Report in the Annual Review and Summary Financial Statement.
Whilst mindful of the fact that savers’ rates have in general remained low for a considerable period, it would not be 4 | Answers to members’ questionspossible to link Directors’ remuneration directly to interest rates as they need to be set at levels which allow the Society to attract and retain individuals of the appropriate calibre to perform the role.
Increases in fees paid to Non-Executive Directors in past years have been generally in line with the increases in salaries for senior management and staff in each year.
Recent increases for both Executive and Non-Executive Directors have also been based on benchmarking against fees and remuneration packages paid by building societies of a similar size.
Do Non-Executive Directors still get paid if they don’t turn up to meetings?
The fees paid to Non-Executive Directors relate, not just to attendance at meetings, but all work connected to their role such as attendance at external events and preparation for meetings. Wherever possible, meeting schedules are arranged well in advance to ensure Non-Executive Directors availability. On occasion, however, it may not be possible for them to attend a meeting due to unforeseen and unavoidable circumstances.
Why should the Executive Directors receive a bonus payment? Do staff at other levels receive any element of performance related pay?
The remuneration package for the Executive Directors is in line with senior management in similar organisations. It has been designed to follow good Corporate Governance practice in that some of the remuneration – described as a bonus in the Report & Accounts – is determined by the performance of the Society and by their own personal performance against a number of pre-agreed objectives. This ensures that their personal interests are aligned with those of the Society. As explained in the Remuneration Report, these objectives are carefully balanced to ensure that no single factor can unduly influence the level of bonus payable. All Society employees are eligible for bonus payments related to individual performance against specified objectives and a formal scheme for performance related pay was introduced across the Society in 2016. The remuneration for all Society colleagues reflects their contribution to the business.
Do other employees receive the same level of pension contribution as the Directors?
The Society operates a non-contributory pension scheme for all employees (including Executive Directors) and the level of contribution is individually agreed as part of the employee’s overall remuneration package.
In line with the Corporate Governance Code 2018, going forward, the pension contribution rates for new Executive Directors will be aligned with those available to the workforce. Non-Executive Directors are not eligible to receive pension contributions.
Have you considered making the pension scheme contributory for all, as there can’t be many non-contributory schemes left?
The Society considers the non-contributory nature of its pension scheme to be an integral and attractive part of the overall remuneration package offered to all staff.
What is the pay of the highest and lowest paid members of staff and how is this arrived at?
The salaries paid to the Executive Directors are published in the Annual Review & Summary Financial Statement sent to all members and available on the Society’s website. All staff are paid the Real Living Wage or above.
We regularly benchmark our salaries against those for comparable roles, paid by similar sized businesses in the finance sector to ensure that the overall remuneration package for all staff remains competitive.
How long is it since the role of external auditor was put out to tender and when will this be repeated?
The Society believes it is good governance to periodically invite tenders from suitable firms for appointment as the Society’s external auditors. A competitive tendering exercise was conducted during 2017, as a result of which the Board proposed that PricewaterhouseCoopers LLP be appointed as the Society’s external auditors. The appointment of PricewaterhouseCoopers LLP was approved at the AGM.
Why did the Society appoint one of the ‘Big Four’ accountancy firms as the Society’s external auditor rather than a smaller firm?
PricewaterhouseCoopers LLP was considered to be very cost effective in terms of fees, and have considerable experience and expertise in the building society sector. This expertise, particularly in relation to the regulatory framework which applies to building societies, is important to us and to the financial services regulators.
Do the auditors do any work for the Society that would compromise their independence?
The Audit Committee is responsible for conducting an annual review of the Auditor’s independence and objectivity. It is our policy that our external auditors should not provide non audit services other than on an exceptional basis.
Are savings rates likely to rise in the near future as they have been very low for a long while?
In keeping with Our Loyalty Promises, our aim is to provide you with long-term value by offering the best available rate on your savings throughout the term of your relationship with us. When promising to pay our best rates, the Society must balance the interests of both savers and borrowers, while ensuring we maintain our financial strength.
Maintaining higher rates than those generally available in the market is a strategy that has clearly rewarded our savings members over the years. By way of example, the chart on page 12 illustrates how the Society’s Instant Access Saver account has compared with the average rate on similar account types over the past 3 years.
The Society recently reviewed the rates paid on savings accounts compared with the market and a number of rates were reduced with effect from 1 May 2019.
Could the Society offer a bonus on top of interest on bonds etc. or some other form of loyalty reward for longstanding members? Will you consider a prize draw for members?
Our Loyalty Promises for both mortgage and savings members were introduced in October 2015 and our Loyalty Cash ISA was made available from the beginning of April 2016.
Our current approach is to ensure that each of our products is simple, with no gimmicks, and we undertake to provide the best rates we can, both to our savers and our borrowers. Accordingly, we have no plans to offer a prize draw for cash prizes, though we do offer regular competitions in Societymagazine into which all members may enter.
Why is the higher rate of interest on your Loyalty ISA not open to all regular savers and mortgage holders who have been with you since before 2010? This seems unfair to savers and borrowers who may wish to open an ISA with the higher rate of interest.
Operationally, the Loyalty Cash ISA rate structure can only be applied to funds which have been held in an ISA, however all members are able to open a Loyalty Cash ISA now and benefit from the rate structure in future.
The Loyalty Cash ISA is only one of the instances where we seek to reward our members’ loyalty and it should be noted that we do offer Members Bonds from time to time which offer a higher rate and which are open to all existing members, whether savers or mortgage holders.
Why do I now have to open a new ISA each year? Why can’t I add to existing ISAs opened in previous years?
The structure of the Society’s Loyalty Cash ISA is based on separating ISA funds by tax years so that the member can receive an enhanced rate for funds which have been with the Society for longer periods.
Whilst the ‘packaged’ computer system we operate does allow a level of customisation to our needs, it cannot apply different rates to funds by tax year unless they are held in separate accounts. In response to members’ feedback we have simplified the Loyalty Cash ISA account opening process and members can now choose to hold a Certificate of Investment rather than a passbook for each ISA account.
The process for handling Regular Saver accounts which have completed their initial twelve-month period seemed unnecessarily cumbersome. What has been done to improve this?
The process followed in 2015 was a matter of operational necessity but, having acted on member feedback, the process was simplified both for members and for Society colleagues who handle the administration.
These changes have simplified the process where members wish to continue to save regularly and have been generally welcomed by members as an improvement.
Why have you done away with the old Regular Saver accounts which did not end after one year?
The previous versions of regular saver accounts were particularly beneficial to holders of those accounts, but were inconsistent with our pledge to treat all members consistently and fairly. The new structure allows the Society to reward members for committing to saving regularly for twelve months and then members are offered various options including an instant access account – which means that the Society cannot be accused of ‘locking in’ members in any way.
Why does the Society not offer fixed rate accounts?
Fixed rate bonds are available from time to time, usually as limited issues available to members coming to the end of their existing fixed rate period or reaching the end of another deal (such as Regular Savers reaching the end of their term).
How can I ensure that I am kept informed about the Society’s products?
We are in the process of building a database of members who wish to receive email communications including marketing information. Anyone wishing to be included should send their details to firstname.lastname@example.org.
You can also see details of products currently available on our website www.scottishbs.co.uk.
Are there any plans to provide postal-only accounts offering enhanced rates?
All the Society’s savings products are available by post as well as through our branch and agency network and there would be no justification for paying higher rates for postal-only accounts.
When do you intend to offer online access for savers?
The Society’s Online Saver account was launched in July 2018 and is very much a first step in our journey towards adding a digital offering as an alternative to our other distribution channels.
Why does the Society not allow members to make payments to third parties from their savings accounts? Would you consider offering accounts with the facility to pay standing orders, and direct debits?
Given the recent increases and incidences of third party fraud generally, the Society took the decision not to allow payments to third parties. The Society has no plans to introduce accounts with the facility to pay standing orders and direct debits to third parties, principally due to the additional costs and compliance required around payment accounts. Our strategy is to be a provider of mortgage and savings products.
Will the introduction of online access for savers mean that passbook accounts will be discontinued?
It is currently envisaged that online services will operate alongside our existing product offerings, giving members a choice of how they wish to interact with the Society.
There is no intention to withdraw passbook accounts, which will continue to operate on the same basis as they do now.
Can you reassure members that the introduction of any internet based services will not increase the risk of fraud and compensation costs?
The Society fully recognises the potential for increased risk from new ventures and will ensure that its processes are designed to minimise those risks.
However, the Society also recognises the risk of not remaining relevant to future generations of savers and borrowers and it is with this in mind that the decision to develop online and card services has been taken.
Given the increase in reported levels of hacking, what measures are in place to protect members’ data and funds handled by outsourced IT firms?
To retain the integrity of our defences we do not divulge the security measures we have in place. The security of our members’ data is of utmost importance to the Society and we will use external expertise to ensure the highest security standards are in place to protect members’ data and finances.
Branch and Agency Network
Are we likely to see the Society opening any new branches in the near future?
We are currently conducting a comprehensive review of branch and agency operations and the possibility of opening new branches and relocating certain of our existing offices forms part of that review.
Does the Society have any plans to reduce the number of agencies that it currently has?
We continually refine our agency network and, whilst we are committed to operating as widely across Scotland as we can, this must be cost effective for the Society. Our assessment process for any new agency includes a minimum set of criteria which aims to ensure the agency will perform well in that location, providing our members with good service and the Society with good business levels on an ongoing basis.
Will you consider opening branches or agencies in England? Can you give any indication of how much business comes from outwith Scotland?
Expansion of the branch or agency network into England is not in our plans. Less than 10% of our savings business comes from outwith Scotland and, as this is spread across the whole of the rest of the UK, there are no individual localities where there would be a sufficient concentration of business to make a branch or agency operation worthwhile.
Can you provide a map of Scotland showing the location of all the Society’s branches and agencies?
A map showing the location of all Society offices is included in the Summary Financial Statement. Members can also search for specific locations or view all branch and agency locations using the Location Finder at www.scottishbs.co.uk.
Will the Society stay mutual?
Each year, when the Board and management hold their Forward Planning session, one of the issues we consider is the future status of the Society. The conclusion each year to date has been to confirm that the future of the Scottish Building Society is as an independent mutual organisation. That conclusion has certainly proved to be the correct one, when one bears in mind that not one of the demutualised building societies has survived as an independent organisation.
In any event, it is the Board’s view that the costs involved in a demutualisation would not make the exercise viable for an organisation of our size.
Do you have any plans to merge with or take over other building societies to secure economies of scale?
The Society absorbed the smaller Century Building Society with effect from 1 February 2013 and is now the only building society headquartered in Scotland. We were delighted to welcome the former members of Century as members of the enlarged society at that time.
Your Board confirms that there have been no other approaches from any building society or other financial institution regarding a merger or takeover. If we ever did receive such an approach, the Board would have a duty to consider the proposal in the best interests of our members.
The Society’s continued operating performance, coupled with our continuing strong financial position, has very much supported the Board’s view that the future for Scottish Building Society is as an independent mutual organisation.
Would the Society consider alliances with credit unions?
The Society would consider an alliance with a credit union provided it was in the best interests of our members such as through the provision of other services that the Society does not currently offer.
What steps do you take to identify vulnerable customers?
All our colleagues receive training on recognising and dealing with vulnerability to enable them to provide appropriate support.
Will the Society offer Open Banking?
The Society does not currently offer Open Banking but this will be kept under review.
Why does the Society not email the AGM packs to members and promote online voting to save on printing and postage costs and to help the environment?
Online voting facilities have been available for a number of years and we are delighted to note that the proportion of members voting online has increased year-on-year.
As part of the voting process we have been asking members to provide us with their email address and to indicate whether they wish to receive future AGM packs electronically, as we are conscious that this will help reduce our impact on the environment.
Following a successful trial of issuing AGM packs by email in 2018, we intend to continue to offer this option to those members who have indicated that they wish to receive their pack in this way.
When two individuals living at the same address are both members, why can you not send one copy of the Annual Review to be shared, to make savings on materials and postage?
Unfortunately the additional administration costs of doing so would outweigh any savings – and it might also involve us in making assumptions about relationships within a household which might not be appropriate. We are also obliged under the Building Societies Act to ensure that each member entitled to vote receives a separate voting form.
Can the AGM packs be issued earlier for those living overseas?
Owing to the legal requirements specifying what has to be included in the AGM mailing and the period within which the AGM must be held we cannot post the mailing significantly earlier. However, the notice of AGM is published on our website as soon as it is posted to members, along with copies of all the relevant documentation and members now have the option to receive their AGM pack by email, vote and submit questions online.
Why does the AGM move around so much?
A decision was taken a number of years ago to hold the AGM in a different branch area each year, aimed at enabling members in locations away from the central belt of Scotland to attend the AGM. Following comments from some members that this practice may be unnecessarily costly, the policy was reviewed after the 2012 AGM and amended so that future AGMs would be held in Edinburgh every other year and in other locations around Scotland in alternate years.
Your Board believes that this provides an opportunity for Directors to meet more members than might otherwise be the case and for members from across Scotland to participate in the running of their Society.
Has the Board considered varying the timing of the AGM, as many members are unable to attend midweek?
Membership engagement is highly important to the Society, and we endeavour to make arrangements that give as many members as possible the opportunity to attend our AGM.
Having again reviewed alternatives, the arrangements for this year’s AGM followed the established pattern but we remain open to other suggestions and will consider all the various possibilities (including both timing and location) on a regular basis.
If you would like to provide feedback on the AGM (or if you have any general feedback or comments about the Society) you can do so via the website, by emailing email@example.com, by telephoning Head Office on 0131 313 7700, or in person at any Society office.
Why do you not enclose up-to-date interest information with the AGM mailing?
The investors’ statement mailing and the AGM mailing occur at around the same time (April each year) and information on rates is included with the statements rather than in the AGM mailing. The Society feels that the AGM pack should concentrate on information related to the meeting.
Have members ever been asked to approve donations to charity in connection with voting forms returned?
The power to make charitable donations is specifically covered in the Society’s Memorandum & Rules – and so the principle has already been approved by members. This power is not exercised without careful consideration and the Society has involved members in choosing which charities to support as outlined in Society magazine.
Why is there a cap on the amount to be donated to charity in connection with the AGM?
In practice, the AGM donations have tended to be well below the cap due to the numbers involved in the voting process. However we will review the position if the cap appears to be unduly low in future years.
Why isn’t more donated to charity for proxy votes received online compared to those received by post? Encouraging members to vote online will save the Society money and help the environment.
We are keen to encourage as many of our members as possible to attend the AGM in person. For those unable to attend in person, however, we will review the amount we donate to charity for online and postal proxy votes for future AGMs.
Why don’t you advertise more (e.g. TV, newspapers)? There are people who have never heard of the Scottish Building Society.
The Society’s current spend on advertising is designed to allow us to achieve the volumes of both mortgage and savings business set out in our corporate plan, and we regularly assess the impact of our advertising to ensure this is in line with our strategic aim of growing our business in a balanced and controlled manner.
Our current activities are spread across a range of media, including TV, radio, newspapers and magazines, and digital platforms.
In addition to advertising, we also attend exhibitions throughout the year and invest in supporting our local communities through our Community Charities of the Year.
The Society’s sponsorship of the Scottish Women’s Premier League will also help raise the profile of the Society over the period of the sponsorship deal and that of women’s football at all levels in Scotland.
EU Referendum and Scottish Independence
Can the Board reassure its members that the outcome of the EU Referendum will not have any adverse effect on the Society’s financial strength?
Whilst recognising that there will be a period of uncertainty until the terms of the UK’s exit from the European Union are fully negotiated, the Board is confident that the Society’s financial strength means that it will continue as a credible provider of savings and mortgage products to its existing and future members.
As the 2015 UK election result and events since then suggest that the question of Scottish independence has not been fully resolved, what assurances are there that funds from investors outwith Scotland remain safe? What will happen to non-Scots investors if there is another referendum?
The Society will address any relevant issues if it becomes clear that another referendum is going to take place. In the meantime, all savers’ funds held with the Society remain as safe as they have ever been, due both to the Society’s financial strength and because they are covered by the Financial Services Compensation Scheme (subject to the limits of that scheme – £85,000 per individual saver with specific exceptions as set out in the FSCS Information Sheet available from branches or on the Society’s website).