The evolving landscape of UK financial mutuals: every challenge is an opportunity − speech by Laura Wallis

Many thanks to BAYES Business School for the invitation to address you today. My remarks will preview the forthcoming joint PRA and FCA Mutuals Landscape Report, which we will publish on Friday at a launch event in Rochdale, with the FCA and the Economic Secretary to the Treasury.  

To help set the context for your discussions today, I will focus on the evolving mutuals landscape, the challenges this presents and opportunities it creates. I will also set out the work we, the regulators, are doing to support sustainable growth in the mutuals sector.

Financial mutuals play an important part in the UK’s financial services industry. Their distinct model of ownership and governance places members at the heart of their business model. Mutuals increase the diversity of the UK financial services sector which in turn makes it more resilient and provides consumers with greater choice, often to underserved communities.

We see that effect across the sectors we supervise. Mutual insurers serve 26 million people, often serving consumers less served by proprietary firms. Credit Unions support over 2 million adults, and research carried out by the FCA suggests that adults living in the most deprived areas of our country are the most likely to use credit unions for savings or loans.

Building societies offer nearly 30% of mortgage lending in the UK, and their asset book has almost doubled in the last ten years. They were able to provide credit to the economy after the financial crisis, in a period where many banks had to be more focussed on repairing their balance sheets. And building societies now account for 35% of the UK’s branch network, up from 14% in 2012. 

The UK has a long history of mutuals, with building societies and friendly societies originating in the UK. Friendly societies (or mutual insurers) date back to the Great Fire of London and the first building society was founded in Birmingham 250 years ago. The sector has evolved over time, reflecting changes in competition and customer demands, economic conditions and the regulatory and legislative environment. The mutuals sector today is diverse, with several very large firms operating across the UK and a vast number of smaller firms, often operating within a local area or niche sector.

The mutuals sector is thriving. It has experienced significant growth in recent years, and the sector is in a robust financial position, with many firms holding substantial capital buffers.

Despite financial mutuals’ success and well-established presence, the sector does face challenges. Some of these challenges are common across all firms operating in the financial services sector, for example those relating to high levels of competition and keeping pace with technological change. Some challenges can be heightened for mutuals due to the difficulties of raising additional capital for growth while retaining a mutual ownership structure. And some challenges are heightened for smaller financial services firms because of a lack of economies of scale. 

I will take a thematic look at how the financial mutuals sector is evolving, focussing on the challenges and opportunities across the life cycle of a firm. I will outline some of the ways in which the sector is adapting to these challenges and the role that regulation can play in supporting sustainable growth.

Entry: opening the door to new mutuals 

The mutuals sector in aggregate has grown over recent years, but we have seen limited entry of new firms. Over the past decade, seven new credit unions have been registered. The last mutual insurer to write new business for consumers was authorised in 1988 and the last building society authorisation was in 1981. A new building society was registered in 2025 but is not yet authorised. 

Establishing a new mutual – or any new financial firm – is not without its challenges. The process is costly, requiring investment in staff, operational infrastructure, and customer acquisition. Capital raising can be particularly difficult for new entrants, and especially so for mutuals given the limited options available.

However, support is available: the regulators offer pre-application guidance through the New Bank Start-up Unit and the New Insurer Start-up Unit, which have between them authorised over 80 new firms. These units offer support and guidance for those looking to enter the market. To help support authorisation of new firms in as low a cost way as possible, we offer a ‘mobilisation’ regime which allows firms to be authorised and, in many cases, start writing business at an early stage.

One possible source of funding for new mutuals is from regional bodies and public funding to support mutuals is available in some parts of the UK. For example, public funding has been provided to various credit unions.

We have seen recent interest in the establishment of regionally focussed mutual or co-operative banks. These are banks owned by their members, typically customers or depositors, but they can provide services and products to non-members as well. This approach is an opportunity for new entrants to the market. 

Economies of scale and diversification: building sustainable models

The mutuals sector is made up of a small number of large firms and a large cohort of smaller ones.

The largest six building societies hold around 90% of total assets. Only seven credit unions have assets over £100 million, representing about 25% of the sector, while roughly 240 credit unions have less than £10 million each. In insurance, the three largest mutuals account for 84% of sector assets, with most concentrated in the largest mutual. And the remaining 90 insurance mutuals together hold just 16%, equivalent to about 1% of total UK insurance sector assets in 2024. 

Many smaller mutuals are thriving, but smaller firms can face more acute business model challenges, particularly those related to managing their expense base in the face of rising operational costs and necessary investment in technology. For example, smaller scale operations can face difficulties in absorbing increasing costs related to IT infrastructure or cyber security as customer expectations for digital services continue to grow and technology continues to develop at pace. To face these challenges, mutuals are continuing to evolve their offering, looking to grow by playing to their strengths and seeking new ways of managing their costs.

Building society services tend to be accessed from branches, with building societies’ branch network accounting for 35% of the UK’s overall branch network, and up to 46% of the network in smaller towns and communities. This presents both an opportunity for the sector in terms of customer acquisition and retention but also a challenge in terms of cost. Several societies have adapted their operating models to reduce costs and deliver improved services, such as running Head Office functions from their branches. Some are making branches into hubs and resources for the wider community. And some societies are trialling multi-bank kiosks in their branches which enable consumers to deposit and withdraw cash and access banking services with a range of banks.

Mutuals can also diversify through their product offerings and often offer niche products or services that their larger competitors do not. Many building societies operate in specialist parts of the mortgage market, such as self-build and shared ownership, leveraging their strengths in manual underwriting. Similarly, mutual insurers operate in specialist markets where members would otherwise by underserved.

Some mutuals may determine that mergers may be a mechanism for gaining scale to maintain the provision of services for their members. Last year, we saw two building societies diversify by acquiring retail banks. We are often asked if the regulators would like to see more consolidation in the mutuals sector and, while we stand ready to support mutuals which wish to enter mergers or transfers of engagements, from a regulatory perspective, we are agnostic on sector structure.

We are committed to supporting mutuals’ efforts to grow sustainably by doing our part to make sure the regulatory cost of doing business is proportionate, especially for smaller firms. We are streamlining the Senior Managers and Certification Regime, have consulted on removing the ‘building societies sourcebook’ to allow building societies to compete on a level playing field with banks, and have removed regulatory fees for a swathe of smaller firms. We are also committed to providing active support for firms’ growth ambitions with initiatives like the FCA/PRA Scale-up Unit. 

Recent regulatory reforms, such as the Strong and Simple regime for banks and building societies and Solvency UK for insurers, are designed to reduce burdens and support sustainable growth. 97% of eligible building societies have already benefited from simplified liquidity requirements, including reduced liquidity reporting under Strong and Simple. The introduction of ‘Solvency UK’ has removed almost 50 reporting templates and changed the threshold to allow smaller firms to become eligible to qualify for the simpler ‘non-directive’ regime. 

For credit unions, we will undertake a comprehensive review of the regulatory regime to ensure it is fit for the future needs of the sector. This will consider the implications of larger and more complex credit unions and more proportionate regulation for smaller credit unions. 

Access to skills and expertise: strengthening governance and capability

Access to specialist skills – such as risk management, technology, operational resilience and governance – is a persistent challenge, especially for smaller mutuals. Many credit unions rely heavily on volunteers, with 20% of credit unions operating without any paid staff and only a quarter employing more than ten paid staff members. 

Collaboration across the sector can play an important role here. Sharing expertise and pooling resources within the sector can be a way to address these pressures, help raise standards and ensure sustainable growth. Such cooperation can be facilitated through networks, such as trade associations or structures such as service organisations. 

Credit Union Service Organisations (CUSOs) are an established way of pooling resources and services in other countries, and we have started to see their adoption in the UK. We support such initiatives and are committed to removing barriers to such collaboration, recognising that shared services and secondary structures can help mutuals remain competitive and resilient. We recently consulted on amending our rules to make entering such arrangements easier for Credit Unions wishing to use CUSOs. These rules will be finalised and published early next year. We would also be supportive of conversations with building societies and mutual insurers who may wish to explore a similar approach. 

Capital: fuelling growth and innovation 

Capital levels across the mutuals sector are strong in aggregate.

Raising capital can be a challenge for all firms, but it can be particularly acute for mutuals due to the mutual ownership structure and limited external options with a lack of a liquid market in mutual capital instruments.

Take up of capital instruments such as Core Capital Deferred Shares (CCDS) has been limited due to factors like cost, complexity, lack of secondary market and scale. On the insurance side, there is significant legislative complexity around insurance capital instruments. As regulators, we would welcome proposals from the industry to broaden capital-raising tools, including secondary structures and new capital instruments, and stand ready to engage on these initiatives. 

Many mutuals hold capital significantly above their regulatory requirements or risk appetites. This, of course is prudent, but there is a danger that it ties up capital which could otherwise be used to invest, innovate, and grow. We are clear that we have no regulatory expectation for firms to hold capital buffers over buffers. 

We also understand that transparency, predictability and consistency of the capital regime is important. This gives firms the confidence to use surplus capital for additional investment, or lending, thereby supporting members and the economy. The Strong and Simple regime and Solvency UK deliver this clarity for smaller building societies and mutual insurers.

Exit: ensuring orderly transitions 

A well-functioning and dynamic market need unviable firms to leave with minimal disruption. For banks, building societies and insurers we have published supervisory statements around preparing for orderly solvent exits. We also ask the largest Credit Unions to prepare credible solvent wind down plans. The aim of this policy is to ensure firms can, if necessary, cease regulated activities responsibly and without market disruption. These regulatory expectations are proportionate to firms’ size and complexity. 

Some firms may decide that mergers are the best route for them. This can be a legitimate way to secure a mutual future for members. But the process of merging or otherwise exiting the market can be complex. For insurers, the ‘Part VIII’ process of merger can be daunting, we are committed to simplifying this process as much as possible and plan to publish our approach to this. 

For credit unions, a transfer of engagement or dissolution are well-trodden paths. However, a lack of transfer partners and significant administration costs means these are less feasible exit options for larger credit unions. We are also aware that there are potential legislative obstacles to exit for some credit unions, although plans from HM Treasury to reform the ‘common bond’ requirement may help.

Where firms are struggling with viability, we stand ready to engage in discussions on solvent (and insolvent) exit options, to prevent disorderly exit and help maintain assets in the mutual sector.

Conclusion: a collaborative path forward 

In closing, mutuals play an important role in UK financial services and today they are a resilient and growing sector. To ensure mutuals remain a thriving part of the financial services landscape of the future, we need to address the challenges of entry, scale, skills, capital, and exit; thereby ensuring delivery of value, choice, and resilience to millions across the UK. 

We have taken and are taking significant steps to support the sector and remain committed to supporting the sector through proportionate regulation, targeted initiatives, and ongoing engagement. But further progress will require action from all stakeholders – industry, regulators, legislators and academics like yourselves – working together to shape a vibrant future for mutuals. 

I would like to thank Anthony Brown, Alison Emblow, Izzy Jennings and Shoib Khan for their support in preparing these remarks.