REPORT & ACCOUNTS 2019 - Dudley Building Society
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REPORT & ACCOUNTS 2019
2 Dudley Building Society
Contents
Page
3 Directors, Management and Advisors
4 Chairman’s Statement
6 Chief Executive’s Review
8 Directors’ Report
17 Corporate Governance Report
26 Audit and Compliance Committee Report
30 Directors’ Remuneration Report
32 Directors’ Responsibilities Statement
33 Independent Auditor’s Report
39 Income Statement
40 Statement of Comprehensive Income and Statement of Changes
in Members’ Interests
41 Statement of Financial Position
42 Cash Flow Statement
43 Notes to the Accounts
92 Annual Business Statement
96 Locations and Contact Details
Report & Accounts 2019 3
Directors, Management and Advisors
Principal Office Address: Internal Auditor
7 Harbour Buildings RSM Risk Assurance Services LLP
The Waterfront St Philips Point
Brierley Hill Temple Row
West Midlands Birmingham
DY5 1LN West Midlands
B2 5AF
Directors
Management
Chairman
Chief Executive
David Milner
Jeremy Wood
Deputy Chairman
Finance Director
Paul Doona
Peter Beddows
Zamir Chaudry
Society Secretary
Tariq Khatri
Megan Price
Jim Muir
Jeremy Wood
Peter Beddows
External Auditor
KPMG LLP
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
4 Dudley Building Society
Chairman’s Statement
Key Performance Indicators
2016 2017 2018 2019
Pre-Tax Profit £1,335,000 £1,720,000 £1,546,000 £1,602,000
Total Assets £353.7m £354.7m £397.4m £438.5m
Reserves £19.9m £21.3m £22.5m £23.8m
Mortgage Lending £57.4m £51.9m £82.2m £92.6m
By now members may be used to my statement referring Some new faces have joined your Board and I am delighted
to another very strong performance; last year was no to introduce Zamir Chaudhry and Tariq Khatri. Zamir brings
exception with your Society announcing its highest to the Board expertise in risk management having over 20
ever lending results supported by strong inflows of new years of experience in this vital discipline. Tariq has spent 20
savings. With the Society growing it came as no surprise years in the financial services sector and is now a specialist
that our profits were, similarly, consistent with in applying data science principles to businesses. Both are
recent years. already bringing broader dimensions to our thinking. I would
like to thank Karen Wilshere and Mike Hughes for their
Hardly a day goes by without negative sentiment being
contributions during their time on our Board.
expressed about the prospects of the UK economy and
it is fair to say that in the financial services sector some Having experienced a significant improvement in the
lenders have found growing their businesses challenging. Society’s performance in recent years, your Board continues
Our marketplace is extremely competitive and there are still to look to the future to ensure that we are well positioned
more new banks being authorised to operate in our markets. to thrive in the markets that offer us growth opportunities
Against that backdrop it is particularly pleasing that an alongside acceptable returns. These are often markets which
organisation with 160 years of pedigree is performing well – are not well served by mainstream lenders in sectors such as
balancing growth with prudent decision making. the self-employed and older borrowers.
Several years ago, Dudley made the decision
to lift the upper age limit on its products and
in the ensuing years many of our peers have
chosen to follow suit.
Report & Accounts 2018 5
Several years ago, Dudley made the decision to lift the
upper age limit on its products and in the ensuing years
many of our peers have chosen to follow suit.
The way in which businesses are governed continues to
receive scrutiny and improvements to practice. With that
in mind your Board has decided to adopt the election of its
Directors every year - this means that all Directors will seek
re-election annually.
In summary, I am extremely proud to represent our
members in what is a highly successful business which
competes nationally whilst maintaining industry leading
levels of service. These are the factors that I believe will set
us apart from our peers and ensure your Society delivers on
its promises to members.
Thank you for your continued support.
David Milner Chairman
16 May 2019
6 Dudley Building Society
Chief Executive’s Review
Last year represented our most successful to date, At times of economic uncertainty, particularly with regards
across a wide range of measures. Alongside the growth to future direction for the UK, we are focusing on providing
achieved and the increase in profitability we continued products and services that members want and need whilst
to make meaningful investment. Process enhancements, preparing for the changes that will inevitably occur.
continued system development and growing employee
A glance at the high street tells us that businesses which
skills are all contributory factors in improving the service
fail to evolve will find survival almost impossible. We have
delivered to members and as a result we continue to be a
made and will continue to make substantial investment in
relevant contributor to the market.
the business which will enable the Society to continue its
The building society sector, is viewed by many as delivering evolution and remain sustainable.
better service to its members and is therefore a useful
Members will note that an adjustment was made in our
benchmark for our own measurement. Trust is one such
income and expenditure account for the fair value of the
metric and it is interesting that our rating - measured by
swaps we carry in support of our fixed rate lending. This is an
industry recognised Net Promotor Score - exceeded peer
accounting matter and not a cash loss that the Society has
group averages.
suffered and will be reversed in the Society’s accounts over
We were thrilled to collect the award for Customer Service the coming years .
Champion at the British Bank Awards in March 2019.
Of the year’s successes, we have excelled in the markets
in which we have developed expertise. In our mortgage
offering we gained significant traction by adopting a holistic
approach to family lending – seeing both parents supporting
children and vice versa. Our saving offering has been
widened to include greater diversity of the product terms
available and the corporate market.
Brexit has continued to dominate the political and economic
landscapes. The impact on the Society has been negligible.
In forecasting future impact, we have applied the Bank of
England’s stress tests to determine the possible outcome and
I am pleased to report that your Society is well positioned in
the event that these severe circumstances arise.
During the year we were delighted to learn
that we were ranked the best building
society to work for and one of the top 25
employers in the Midlands.
Report & Accounts 2018 7
During the year we were delighted to learn that we were
ranked the best Building Society to work for and one of
the top 25 employers in the Midlands. The tables used are
compiled by the ‘Best Companies to Work For’ organisation
and use feedback directly from employees. Whilst we are
often recognised by industry commentators, the ‘Best
Companies’ accolade is by far the one of which I am most
proud. I would like to extend my thanks to all colleagues for
their continued commitment and for the passion they bring
to your Society.
The Building Society sector surprises many in continuing
to grow its share of both savings and mortgages. I am very
pleased that your Society is part of that trend – a successful
Society in a successful sector.
Thank you for your continued support.
Jeremy Wood Chief Executive
16 May 2019
8 Dudley Building Society
Directors’ Report
Key Performance Indicators
Savings Balances 2015 – 2019 360
This year we have raised a net £21.2m from our 350
members and other customers who now trust us 340
with £354.2m of their savings. 330
£m 320
310
300
290
307.2 329.4 330.2 333.0 354.2
280
2015 2016 2017 2018 2019
Gross Lending 2015 – 2019 100.0
90.0
We have lent a record £92.6m to help our
80.0
borrowing members and other customers to
70.0
acquire or remortgage their home, contributing 60.0
to net lending this year of £44.2m –
£m
50.0
another record. 40.0
30.0
20.0
10.0
52.2 57.4 51.9 82.2 92.6
0.0
2015 2016 2017 2018 2019
3 month+ arrears cases have increased by 7 cases compared with March 2018 but our long term trend in all other arrears
measures remains positive, as is clear from the graphic showing arrears cases over 1.5%.
3 Month+ Arrears Cases 2015 – 2019 1.5%+ Arrears Cases 2015 – 2019
45 80
40 70
35
Number of Cases
Number of Cases
60
30
50
25
40
20
30
15
10 20
5 10
42 29 15 18 25 70 54 34 41 38
0 0
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Report & Accounts 2019 9
Liquid Assets 2015 – 2019 84.0
82.0
We have put our liquidity to use during 2018/19 80.0
leading to a reduction of £2.7m.. 78.0
76.0
£m
74.0
72.0
70.0
68.0
66.0
64.0
69.5 81.5 72.9 78.8 76.1
62.0
2015 2016 2017 2018 2019
Total Assets 2015 – 2019 500.0
450.0
We have grown our total assets to a
400.0
record £438.5m.
350.0
300.0
£m 250.0
200.0
150.0
100.0
50.0
328.5 353.7 354.7 397.4 438.5
0.0
2015 2016 2017 2018 2019
Profit Before Tax 2015 – 2019 2000
1800
Our Profit Before Tax has increased to £1.602m
1600
this year.
1400
1200
£000’s
1000
800
600
400
200
1,233 1,335 1,720 1,546 1,602
0
2015 2016 2017 2018 2019
And, as a Building Society where profits are our only source of capital, we have strengthened our capital base by £1.3m but the
% ratio has fallen as a result of Balance Sheet growth.
Capital (£) 2015 – 2019 Capital (%) 2015 – 2019
25 7
6
20
5
%
15
£
4
10
3
5
2
18.9 19.9 21.3 22.5 23.8 6.11 6.02 6.43 6.02 5.74
0 1
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
10 Dudley Building Society
Directors’ Report
for the Year Ended 31 March 2019
The Directors have pleasure in Business Objectives
and Principal Activities
presenting their 160th Annual
The Society’s principal activity is the provision of long term
Report, together with the Annual residential mortgages to borrowers, financed by personal
Accounts and Annual Business savings from members.
Statement of Dudley Building The Society’s objectives are to:
Society for the year ended • provide competitive savings products primarily for the
local community and mortgage products nationally;
31 March 2019.
• preserve its identity as an independent local Building
Society within the community;
• maintain adequate reserves to safeguard
members’ funds;
• provide customer care and a quality service to
its members.Report & Accounts 2019 11
Directors’ Report (continued)
Business Review Management Expenses Ratio
The Society’s key performance indicators are noted on page The Society has always been conscious of the need to
8 and a review of the Society’s business during 2018/19 is manage costs carefully but expects to continue to invest in
contained within the Chief Executive’s Report on page 6. building its infrastructure in terms of our people, systems
and premises. As a % of mean total assets, management
Key operating matters are noted below: expenses have decreased to 1.73% (2018: 1.94%). It should
be noted that management expenses in 2017/18 included
Assets the impact of the change in amortisation approach for
intangibles which added £885k to the Society’s costs in
Total assets increased during the year by £41.1m (2018:
that year. Without this impact, the Society’s management
£42.7m) and at 31 March 2019 amounted to £438.5m
expenses ratio for 2017/18 would have been 1.70%.
(2018: £397.4m) representing an increase of 10.34% (2018:
12.04%). Liquid Assets decreased by £2.7m to £76.1m (2018:
Mortgages
£78.8m) as a result of the record net lending performance
and, as a proportion of Shares and Other Borrowings, ended Against a highly competitive background, the Society’s
the year at 18.42% (2018: 21.11%). lending strategy has continued to deliver positive growth
and £92.6m was advanced in the year – a record for the
Profitability and Capital Society - compared with £82.2m last year.
The after tax profit including Other Comprehensive Income At the end of the year the Society had 2 properties in
(OCI) of £1.257m (2018: £1.152m) represents 0.33% (2018: possession (2018: 5). The Society has made great strides
0.31%) of mean total assets. The reserves amount to £23.8m to help borrowers remain in their homes by using every
(2018: £22.5m) and are considered by the Board to offer appropriate means to encourage customers’ motivation and
adequate support for the business. Our gross capital as a % enthusiasm to continue as owners. In addition, the Society
of our shares and other borrowings has decreased to 5.74% continues to maintain an appropriate provisioning policy
(2018: 6.02%) and our free capital as a % of shares and designed to protect against future difficulties in the
other borrowings has decreased to 5.39% (2018: 5.59%). housing market.
These decreases are a result of Balance Sheet growth
achieved in the year.12 Dudley Building Society
Directors’ Report (continued)
Savings Principal Risks and Uncertainties
The market for savings was extremely competitive in As a Building Society, the Dudley is governed by its low risk
2018/19. The Society took advantage of the Bank of culture, and aims to maintain a low exposure to risk in order
England’s Indexed Long Term Repo (ILTR) scheme and to protect members’ interests.
raised £10.0m of funding via this scheme. The Society
The principal business risks to which the Society is exposed
remains committed to providing fair rates of interest and
are considered to be:-
a competitive range of products to its members while
operating against a backdrop of a very dynamic • Credit Risk
savings market.
Credit risk arises primarily in respect of non-payment
Directors of mortgage loans, but also as a result of the Society’s
investments as part of its Treasury activities. Credit risk is
The following persons were Directors of the Society during mitigated through Board-approved Lending and Treasury
the year:- Policies which reflect our low risk tolerance and which
include clear guidelines in respect of processes
David Milner (Chairman)
and exposures.
Paul Doona (Deputy Chairman)
Zamir Chaudhry (appointed 13/09/2018) The Society has increased its collective provision in 2018 / 19
Tariq Khatri (appointed 13/12/2018) as a result of continuing Brexit uncertainty and its potential
impact on the housing market which reflects the fact that,
Mike Hughes (resigned 11/10/2018)
at the time of writing, the UK Government and EU have not
Jim Muir agreed the terms of Brexit. The potential impacts of Brexit
Karen Wilshere (resigned 31/07/2018) on the Society include levels of unemployment, house prices
Jeremy Wood (Chief Executive) and interest rates. In modelling future impact, the Society
Peter Beddows (Finance Director) has applied the Bank of England’s stress tests and the Board
considers that the Society is well positioned in the event that
During the year, the Board appointed Zamir Chaudhry and these severe circumstances arise.
Tariq Khatri as Directors. They now retire under Rule 25(4)
and offer themselves for re-election.
Having served as a Director for more than nine years, David
Milner is required to retire and offer himself for re-election
on an annual basis.
The Board has resolved in the year that all Directors should
be subject to annual re-election. Therefore, Paul Doona, Jim
Muir, Jeremy Wood and Peter Beddows all retire and offer
themselves for re-election at the AGM.Report & Accounts 2019 13
Directors’ Report (continued)
In respect of Credit risk on mortgage lending, we focus • Regulatory Risk
on supporting borrowers who may be having payment
This is the risk to the business, through financial loss or
difficulties to assist the borrower in returning to a normal
reputational damage that arises from a lack of compliance
repayment pattern, and in so doing help to mitigate any
with relevant laws and regulations. The Society monitors
potential future loss to the Society. Where we consider
such risks through both its Risk Committee and Audit and
that there is potential for a loss to be incurred, we make a
Compliance Committee with comprehensive reporting and
provision for this in accordance with our policies.
assessment of Regulatory Risk.
• Market Risk / Interest Rate Risk
• Conduct Risk
This risk incorporates the loss of income as a result of
This risk can arise when a firm’s actions or behaviours
changes to interest rates, including where there is a
result in inappropriate or poor outcomes for customers.
mismatch between the interest rate characteristics or
The Society has a customer-focused culture that is in line
maturity profiles of assets and liabilities. The Board-approved
with the principle of an organisation which is owned by its
Treasury Policy sets limits for assets and liabilities on
members. Conduct Risk is assessed and monitored through
differing interest rate bases.
the Society’s Risk Committee structure, including via its
Such differences may be hedged naturally between our fixed Customer Committee which considers all the Society’s
rate mortgages and fixed rate savings bonds, but any gaps customer interactions and metrics.
outside of natural hedging, subject to the Board-approved
The Society’s approach to Conduct Risk is based on the
limits, are hedged via interest rate swaps.
six key outcomes as defined by the Financial Conduct
Authority (FCA):-
• Liquidity Risk
• Outcome 1: Consumers can be confident that they are
This risk concerns the Society’s ability to meet its financial dealing with firms where the fair treatment of customers
obligations as they fall due as a result of imbalances in the is central to the corporate culture.
cash flow of its activities. The Society monitors its overall
liquidity with reference to limits set by regulation and also • Outcome 2: Products and services marketed and sold
internal limits set by the Board through its Treasury Policy. in the retail market are designed to meet the needs of
identified consumer groups and are targeted accordingly.
• Operational Risk
• Outcome 3: Consumers are provided with clear
This is associated with the Society‘s internal processes and information and are kept appropriately informed before,
systems and the potential for these not to function properly. during and after the point of sale.
The Society operates a robust process of risk assessment and
• Outcome 4: Where consumers receive advice, the advice
monitoring. The Board oversees a Risk Committee which
is suitable and takes account of their circumstances.
comprises all Non-Executive Directors to supervise the
Society’s risk approaches. • Outcome 5: Consumers are provided with products
that perform as firms have led them to expect, and the
associated service is of an acceptable standard and as
they have been led to expect.
• Outcome 6: Consumers do not face unreasonable post-
sale barriers imposed by firms to change product, switch
provider, submit a claim or make a complaint.14 Dudley Building Society
Directors’ Report (continued)
Capital
During the year, the Board continued to review its risk profile in view of the requirements of Basel III and its associated Capital
Requirements. Accordingly, the Society’s policies and procedures are updated to reflect current best practice, and the Society
publishes details of the Basel III ‘Pillar 3’ disclosures on its website.
The following table sets out the reconciliation of capital per the statement of financial position to regulatory capital
(note that the increase in Total Capital Requirement and the consequent reduction in Surplus, arise from increases in 2018 / 19
in regulatory capital buffers applied to all UK Banks and Building Societies):
Group and Group and
Society Society
2019 2018
£000s £000s
Capital Available:
General Reserve 23,773 22,484
Available-for-Sale Reserve (37) (5)
Total capital per statement of financial position 23,736 22,479
Regulatory adjustments to obtain Common Equity Tier 1
Intangible assets (837) (667)
Common Equity Tier 1 capital 22,899 21,812
Tier 2 capital
Collective allowance for impairment (total Tier 2 capital) 758 386
Total regulatory capital 23,657 22,198
Total Capital Requirement 19,121 14,987
Surplus of capital over Total Capital Requirement 4,536 7,211
Information Technology
The Society operates on a system and managed service provided by Unisys Ltd and continues to invest in all areas of
Information Technology and Information Security.Report & Accounts 2019 15
Directors’ Report (continued)
Going Concern Creditor Payment Policy
The Directors have prepared forecasts of the Society’s capital The Society’s continuing policy concerning the payment of
position, financial position and liquidity for the period ending its trade creditors is to pay within the agreed terms of credit,
twelve months from the date of approval of these financial once the supplier has discharged its contractual obligations.
statements. The Directors have also prepared forecasts Trade creditor days at 31 March 2019 amounted to 5 days
to consider the effect on the Society’s business, financial (2018: 8 days).
position, capital and liquidity of operating under stressed,
but plausible, operating conditions. The forecasts satisfy Arrears Management
the Directors that the Society has adequate resources to
The Society actively managed its mortgage accounts
continue in business for the foreseeable future. Accordingly
in arrears, taking into account individual customer
the accounts continue to be prepared on a going
circumstances. At 31 March 2019 there was 1 account where
concern basis.
payments were twelve months or more in arrears (2018: 1).
The total arrears balance outstanding on this account was
Financial Risk Management Objectives and Policies
£25,849 (2018: £24,394) and the aggregate capital balance
The Society has a formal structure for managing risk, was £419,610 (2018: £177,283 in relation to a different
including the establishment of a Risk Committee, which mortgage). The long term trend in arrears performance in
reviews risk limits, reporting lines, mandates and other all metrics other than 3 month+ remains positive. Individual
control procedures. In addition the Society’s Assets and provisions have been made where necessary in respect of
Liabilities Committee is charged with the responsibility all arrears cases.
for managing and controlling the balance sheet exposures
By identifying early signs of any payment difficulties and
and the use of financial instruments for risk management
working with borrowers in these situations we are able
purposes. Full details regarding the risks and the financial
to minimise the financial impact on our borrowers which
instruments used by the Society are given in Note 27 to
is clearly in both parties’ interest. Forbearance measures
the Accounts.
include temporary transfer to interest only, mortgage
term extensions, and temporary reductions in contractual
Donations
monthly payments. As at 31 March 2019, there were 11
During the year, charitable donations totalling £4,000 cases subject to the Society’s forbearance measures (2018:
(2018: £269) were made. There were no donations for 27, albeit 22 of these were with a single borrower) with total
political purposes. outstanding capital balances of £0.82m (2018: £1.72m).
The Society makes provisions for any expected loss resulting
from accounts in arrears in accordance with the Board
approved policy.16 Dudley Building Society
Directors’ Report (continued)
Bank of England Funding Schemes The Society takes seriously the need for all of our employees
to be aware of Regulations to which we are subject and all
On 27 January 2014, the Society joined the Bank of England’s
are required to pass a number of e-learning Compliance tests
Funding for Lending scheme, designed to encourage Lenders
on an annual basis.
to increase levels of mortgage business. A sum of £14m was
drawn down under the scheme. This facility was repaid in
Environment
January 2018 as the scheme came to a close on its
fourth anniversary. The Society seeks to be environmentally aware in the way
we conduct our business. Where opportunities arise to
In 2017/18 the Society participated in the Bank of England’s
enhance the efficiency of our working environments, these
Term Funding Scheme and drew down £33.5m of funding.
will be factored into our ongoing series of property moves
These funds are repayable no later than four years from the
and refurbishments.
date of drawdown.
In March 2019 the Society entered for the first time into the Auditor
Bank of England’s Indexed Long Term Repo (ILTR) facility
Our Auditor, KPMG LLP, has expressed its willingness to
raising £10.0m.
continue in office and, in accordance with Section 77 of
the Building Societies Act 1986, a resolution for their
Employees
re-appointment will be proposed at the Annual
The Society aims to attract and retain appropriately qualified General Meeting.
and experienced employees to ensure its Corporate Plan can
be delivered, as well as providing excellent customer service. On behalf of the Board of Directors
Megan Price
The Society actively supports employees engaged in Society Secretary
professional qualifications offering course and examination 16 May 2019
fees and providing paid periods for study and exam leave.Report & Accounts 2019 17
Corporate Governance Report
for the Year Ended 31 March 2019
Corporate Governance At least once a year, the Non-Executive Directors meet
without the Executives present to discuss the performance
Although the UK Corporate Governance Code (the Code)
of the Executive Team. In addition, the Board carries out
does not directly apply to mutual organisations, the Board
an annual Board Effectiveness review and acts on
has paid due regard to the principles of the Code.
any recommendations.
Principle A.1 – The Role of the Board Monthly meetings of the Board take place where
constructive challenge is encouraged.
Every company should be headed by an effective Board,
which is collectively responsible for the long-term success The structure of Board and Executive Committees is
of the company. represented graphically as follows:
The Board directs the business of the Society with particular
attention to strategy and risk. It ensures that compliance
with regulatory and statutory requirements is met and
that financial controls and systems are effective. There
are specific matters reserved for Board decisions including
approval of the Corporate Plan. The Executive Directors
are responsible for the day to day running of the business,
meeting the objectives of the Corporate Plan and complying
with regulatory and statutory matters.
Board
(David Milner)
Audit & Compliance Nomination Assets & Liabilities Remuneration
Risk Committee
Committee Committee Committee Committee
(Paul Doona)
(Jim Muir) (David Milner) (Jeremy Wood) (Jim Muir)
CEC
(Jeremy Wood)
Customer Treasury & Volumes
Credit Committee Executive Risk
Committee (Lucy Foley
(Raj Bains) (Jeremy Wood) & Jenny Hawthorne)
(Liam Butler)
Product & Pricing
Committee
(Lorraine Breese-Price)
Board Committee
Executive Committee
The name in brackets is the Chairman of each Committee as at 31 March 2019.
“CEC” refers to the Chief Executive’s Committee.
Each Committee has a dotted line report into Risk Committee.18 Dudley Building Society
Corporate Governance Report (continued)
Certain matters are delegated to the following Committees: Remuneration Committee
This Committee meets at least twice a year and
Audit & Compliance Committee
recommends for approval by the Board the appropriate
This Committee meets at least four times a year and remuneration, benefits and contracts of the Directors and
includes at least one member with relevant recent Senior Managers of the Society.
financial experience.
The Committee membership comprises all Non-Executive
It considers the adequacy of internal controls and risk Directors. Jim Muir is Chairman of the Committee.
management framework, internal and external audit
arrangements, financial reporting and the Society’s policies Nomination Committee
on Whistleblowing, Anti-Money laundering, Gifts and
This Committee normally meets at least twice a year and
Hospitality, Data Protection, Procurement and the Fit
reviews succession planning for both Non-Executive and
and Proper policy.
Executive positions. It considers the balance and range
Full details of the work of this Committee can be found in of skills, knowledge and experience when dealing with
the Audit and Compliance Committee report on pages 26 Board appointments. When making recommendations for
to 29. appointment to the Board, the Committee has due regard
for the benefits of diversity.
The Committee membership comprises three Non-Executive
Directors: Jim Muir (Chairman), Paul Doona and The Committee oversees the structure, skills, composition
Zamir Chaudhry. and effectiveness of the Board and its Committees.
The Executive Directors are not members of the Committee Oversight of appraisals of all Directors is the responsibility
but, together with representatives from internal and external of the Committee, as is the review of the Board’s
auditors, the Society Chairman and the Society’s Risk, performance collectively.
Compliance and Financial Crime Team, attend by invitation.
The Committee membership comprises all Board Members,
with the Society Chairman acting as Committee Chairman.Report & Accounts 2019 19
Risk Committee The Society also operates the following four Committees:
This Committee meets at least four times per year and
Credit Committee
monitors and reviews the Society’s risk management
framework covering Prudential, Operational and This Committee meets monthly and monitors the
Conduct Risk in order to ensure there is a comprehensive quality and profile of the mortgage portfolio in line with
understanding of the risks confronting the Society, both in the Society’s lending policy and in accordance with the
terms of its strategic thinking for the future and its daily regulatory limits and guidelines. It reviews policy, lending
operational management. Its review covers the potential mandates and arrears performance.
likelihood and impact of occurrence of risks, and how they
The Executive Directors are members of the Committee,
are mitigated. The Society’s Risk reporting includes its
together with the Head of Risk, Compliance and Financial
Internal Capital Adequacy Assessment Process (ICAAP) and
Crime and the Head of Commercial, the Head of Mortgage
Internal Liquidity Adequacy Assessment Process (ILAAP).
Operations. The Head of Operations (Raj Bains) acts
The Committee membership comprises all Non-Executive as Chairman.
Board Members, with Paul Doona acting as Chairman.
Customer Committee
Assets & Liabilities Committee
The Committee meets bi-monthly and oversees the Society’s
The Committee is responsible for overseeing the structure approach, policies, procedures and actions to ensure that
of the Society’s assets and liabilities and includes overseeing there is a focus on the delivery of fair customer outcomes.
policies relating to liquidity, wholesale funding, interest rate
The Committee comprises Executive Directors and relevant
risk management and Balance Sheet structure. Oversight
Senior Managers. The Head of Finance (Liam Butler) acts
of Treasury matters is the responsibility of the Society’s
as Chairman.
Board although matters raised in the Assets and Liabilities
Committee are also reported to the Risk Committee.
The Committee membership comprises the Executive
Directors: Jeremy Wood (Chairman) and Peter Beddows,
three Non-Executive Directors: Paul Doona, David Milner
and Jim Muir, the Head of Risk, Compliance and Financial
Crime, the Head of Finance, the Head of Commercial and
the Products Manager.20 Dudley Building Society
Corporate Governance Report (continued)
Chief Executive’s Committee (CEC) Principle A.2 – Division of Responsibilities
The Committee meets weekly and is responsible for the There should be a clear division of responsibilities at the head
executive oversight and challenge of business performance of the company between the running of the Board and the
and risk. It reports to the Board and/or Board Sub- Executive responsibility for the running of the company’s
Committees, as appropriate. business. No one individual should have unfettered powers
of decision.
The Committee comprises Executive Directors and relevant
Senior Managers. The Chief Executive acts as Chairman. The offices of Chairman and the Chief Executive are entirely
separate. The Chairman is responsible for leading the Board
Executive Risk Committee and the Chief Executive is responsible for managing the
Society’s business within the policies established by
The Committee meets monthly and its primary
the Board.
responsibility is to review and manage key risks to ensure
that they are within the Board’s Risk Appetite.
Principle A.3 – The Chairman
The Committee reports to the Board Risk Committee.
The Chairman is responsible for leadership of the Board and
The Committee comprises Executive Directors and relevant
ensuring its effectiveness on all aspects of its role.
Senior Managers. The Chief Executive acts as Chairman.
The Chairman sets the culture and direction of the Board,
General Board and Committee Matters facilitating and encouraging effective contribution and
challenge from Directors, and maintaining constructive
Minutes are the responsibility of the Society Secretary,
relations between Non-Executive and Executive Directors.
(Megan Price), and are taken by her or a nominated
The Chairman ensures Directors receive accurate, timely
representative for all Board Sub-Committee meetings
clear advice and information.
which are then reviewed by the full Board.
Board and Committee Terms of Reference can be obtained
from the Society Secretary and are also available on the
Society’s website.
The Society maintains liability insurance cover for all
Directors and Officers.Report & Accounts 2019 21
Principle A.4 – Non-Executive Directors Principle B.2 – Appointments to the Board
As part of their role as members of a unitary Board, Non- There should be a formal, rigorous and transparent procedure
Executive Directors should constructively challenge and help for the appointment of new Directors to the Board.
develop proposals on strategy.
The Nomination Committee leads the process for
The Society’s Non-Executive Directors are recruited from a appointments which are based on merit and widely
wide range of backgrounds to bring the necessary skills and advertised. Specific attention is given to the skills and
experience to the Board in order to monitor and challenge experience required under the succession plan for both
the performance of the Society, whilst providing effective Executive and Non-Executive Directors. Each Director
support to the Executive Management. appointed must obtain the necessary regulatory approval
and meet the fitness and propriety standards required by
The Deputy Chairman is the Senior Independent Director
the Financial Conduct Authority in order to fulfil their role.
and provides an alternative route of communication for
The Board as a whole makes the final decision
Board members, Society members and staff. Responsibilities
on appointments.
include carrying out the appraisal of the Chairman and
deputising in his absence.
The procedure for appointing new Non-Executive Directors
At least once a year the Board have meetings with a specific to the Board includes preparing a job specification,
section devoted to discussions without the Executive advertising the role and an interview with the Chairman
Directors being present. Additionally, at least once a year, and Deputy Chairman. Following appointment, a formal
without the Chairman present, the Board devotes time to induction and relevant documents about the Society
appraise the Chairman’s performance. Board meetings are are provided.
formally minuted and any dissenting views recorded.
Principle B.1 – Composition of the Board
The Board and its Committees should have the appropriate
balance of skills, experience, independence and knowledge
of the company to enable them to discharge their respective
duties and responsibilities effectively.
The current Board consists of five Non-Executive and two
Executive Directors who provide a wide range of skills
and experience to cover all areas of the business. All Non-
Executive Directors are considered by the Board to
be independent.22 Dudley Building Society
Corporate Governance Report (continued)
Principle B.3 – Commitment Principle B.5 – Information and Support
All Directors should be able to allocate sufficient time to the The Board should be supplied in a timely manner with
company to discharge their responsibilities effectively. information in a form and of a quality appropriate to enable it
to discharge its duties.
It is part of the Nomination Committee’s responsibility to
evaluate the ability of a Director’s commitment to allow The Chairman ensures that the Board receives information
time for the role. As part of the appraisal process, the sufficient to enable it to discharge its responsibilities.
Chairman will assess the time commitment made by each Executive Management ensures that information is delivered
Non-Executive Director. in accordance with Board requests. The Society Secretary
provides support where necessary and all Board members
The attendance record of each Director is set out in this
have access to independent advice if required in order to
Report on page 25.
discharge their responsibilities as Directors.
Executives cannot be appointed to the Board of any other
The Society Secretary’s appointment and removal is a matter
organisation without the approval of the Society’s Board.
for the Board as a whole.
Principle B.4 – Development
Principle B.6 – Evaluation
All Directors should receive induction on joining the Board and
The Board should undertake a formal and rigorous annual
should regularly update and refresh their skills and knowledge.
evaluation of its own performance and that of its Committees
The Chairman, in consultation with the Executive Directors, and individual Directors.
provides a formal induction for Non-Executive Directors
All Directors are subject to an annual performance and
tailored to their needs. The Chairman ensures that
evaluation review, with the Non-Executive Directors and
Non-Executive Directors continually update their skills
Chief Executive having an annual review by the Chairman,
and knowledge to fulfil their role on the Board and any
and the Finance Director being evaluated by the
Committees. Training and development needs are identified
Chief Executive.
as part of the annual appraisal of the Board and individual
Director performance and effectiveness. These needs are The performance of the Chairman is evaluated by the Senior
usually met by internal briefings and via attendance at Independent Director, taking into account the views of Non-
industry seminars and conferences. Executive and Executive Directors.Report & Accounts 2019 23
Annually, the Board and its various Committees are Principle C.1 – Financial & Business Reporting
also subject to review and assessment, and their future
The Board should present a fair, balanced and understandable
membership agreed.
assessment of the company’s position and prospects.
Principle B.7 – Re-election The responsibility of the Directors in relation to the
preparation of the Society’s accounts and the statement that
All Directors should be submitted for re-election at regular
the Society’s accounts are prepared on the Going Concern
intervals, subject to continued satisfactory performance.
basis can be found on page 32.
The Society’s Rules require that all Directors submit
The Board is of the opinion that the Financial Statements
themselves for election at the Annual General Meeting
present a fair, balanced and understandable assessment of
(AGM) following their appointment. In addition, during
the Society’s position and performance.
2018 / 19 the Board resolved that, in future, all of the other
Directors must seek re-election annually, with members
Principle C.2 – Risk Management and Internal Control
being provided with sufficient biographical detail and other
relevant information in order to take an informed decision The Board is responsible for determining the nature and
on their election. The Chairman and Deputy Chairman are extent of the significant risks it is willing to take in achieving
elected annually by the Board. its strategic objectives. The Board should maintain sound risk
management and internal control systems.
The Board’s current policy is that Non-Executive Directors
should not normally serve for more than nine years. In order The Board is collectively responsible for determining
to ensure smooth handover of the Board, David Milner strategies for risk management and control as described
agreed to extend his term to the Society’s AGM in July 2020. in the Society’s Risk Management Framework. Executive
Having served for greater than nine years, David Milner is Management is responsible for designing, operating and
now subject to annual re-election. monitoring risk management systems and controls. Each
Board Committee is responsible for the risks and controls
The Nomination Committee considers whether Board
within its remit. The Risk Committee assesses the adequacy
members are independent in character and judgement, are
of this process and reports to the Board. The Society’s
able to commit sufficient time and demonstrate capability
internal auditors provide independent and objective
and knowledge.
assurance that the systems are appropriate and controls
The Nomination Committee recommends to the Board effectively applied.
whether a Non-Executive Director should be submitted
The Board has reviewed the effectiveness of the risk
for re-election.
management systems and controls and concluded that the
Society has a strong compliance culture and that systems
are effective and appropriate to the scale and complexity
of the business.24 Dudley Building Society
Corporate Governance Report (continued)
Principle C.3 – Audit Committee and Auditor The Society is committed to communicate with members
through regular newsletters, social media and Society events
The Board should establish formal and transparent
attended by the Executive and Non-Executive Directors.
arrangements for considering how they should apply the
The purpose of this dialogue is to understand the views and
corporate reporting and risk management and internal control
needs of the members and improve the service to them.
principles and for maintaining an appropriate relationship with
the company’s auditor. Principle E.2 - Constructive Use of the Annual General
Meeting (AGM)
The Committee as a whole has expertise related to the
sector and at least one of the members has recent and The Board should use the AGM to communicate with investors
relevant financial and risk management experience. and to encourage their participation.
The responsibilities, membership and frequency of meetings
Each year the Society sends details of the AGM to members
of the Committee are set out on pages 26 to 29.
who are eligible to vote. The resolutions include the election
Membership is confined to Non-Executive Directors but / re-election of Directors and a separate advisory vote on the
meetings are attended by the Executive Directors, the Directors’ Remuneration Report. Members are encouraged
Head of Risk, Compliance and Financial Crime (Ali Fellows) to exercise their right to vote. Members are provided with
and a representative from Internal and External Audit, by forms which enable them to vote utilising a proxy if they
invitation. The Committee also meets with both the Internal are unable to attend the AGM. The Society Secretary is
and External Auditors at least once per year without the responsible for the distribution of AGM notices in accordance
Executive Directors. The Minutes of the Committee meetings with the Society’s Rules and the receipt and counting of
are circulated to all Board members. proxy votes.
At the AGM, a poll is called in relation to each resolution and
Principle D - Relating to Remuneration
the proxy votes cast are included in the result. The results are
The Directors’ Remuneration Report on page 30 explains published on the Society’s website.
how the Society complies with the Principles relating
All members of the Board are present at the AGM each year
to remuneration.
unless their absence is unavoidable. The Chairmen of the
Board Committees are therefore available to encourage
Principle E.1 - Dialogue with Shareholders
questions during the meeting and to answer questions raised
There should be a dialogue with shareholders based on the by the Society’s members.
mutual understanding of objectives. The Board as a whole has
responsibility for ensuring that a satisfactory dialogue with
shareholders takes place.
As a mutual organisation, the Society’s membership consists
of individuals who are also the Society’s customers.Report & Accounts 2019 25
Board and Committee Membership Attendance Record
The table below shows the number of meetings of the Board and its Committees at which each Director was present and in
brackets the number of meetings that Director was eligible as a member of the Board or Committee to attend during the year.
Board Audit & Risk Remuneration Nomination
Compliance
Non-Executive Directors
David Milner (Chairman) 10 (11)* - 9 (10) 2 (3) 6 (6)*
Paul Doona 11 (11) 7 (7) 10 (10)* 3 (3) 6 (6)
Zamir Chaudhry (Appointed 13/09/18) 5 (6) 1 (2) 5 (6) 1 (1) 3 (3)
Mike Hughes (Resigned 11/10/18) 5 (6) 5 (6) 4 (5) 1 (1) 2 (2)
Tariq Khatri (Appointed 13/12/18) 3 (3) - 2 (2) 1 (1) 2 (2)
Jim Muir 6 (11) 2 (7)* 5 (10) 2 (3)* 4 (6)
Karen Wilshere (Resigned 31/07/2018) 4 (4) - 4 (4) 1 (1) - (2)
Executive Directors
Jeremy Wood 11 (11) - - - 6 (6)
Peter Beddows 11 (11) - - - 6 (6)
*Committee Chairman26 Dudley Building Society
Audit and Compliance Committee Report
The Audit and Compliance Committee acts under authority • Review and monitor the integrity and effectiveness
delegated to it by the Board. It is responsible for assessing of the Society’s internal financial controls, reporting
systems and controls, the provision of accurate financial and risk management.
information and establishing effective whistleblowing
• Approve the appointment and removal of the
practices. The Committee reviews the annual accounts prior
Internal Auditor.
to approval by the Board and monitors the effectiveness and
independence of both internal and external auditors. • Review and approve the remit of the internal audit
It also approves the instruction of the Internal and External function and ensure it is adequately resourced, has
Auditors to carry out any non-audit assignments. access to necessary information and has appropriate
standing within the Society.
The Committee is authorised by the Board to:
• Review and approve the Annual Internal Audit Plan.
• Investigate any activity within its Terms of Reference;
• Monitor and assess the role and effectiveness of the
• Seek any information that it requires from
internal audit function in the overall context of the
any employee of the Society, for which purpose all
Society’s risk management framework.
employees are directed to co‐operate with any request
made by the Committee; and • Regularly review the appointment and performance
of the outsourced internal auditors. At appropriate
• Obtain external legal or independent professional
intervals, obtain an independent and objective external
advice, at the Society’s expense.
assessment of the internal audit function.
Committee Responsibilities • Oversee the Society’s relations with the
external auditor.
The principal responsibilities of the Committee are to:
• Review, and challenge where necessary, the actions and
judgements of management, in relation to the Society’s
financial statements, summary financial statement and
the operating and financial review before submission
to, and approval by, the Board, and before clearance by
the auditors. Particular attention is paid to:
- Critical accounting policies and practices, and
any changes in them;
- Decisions requiring a significant element of
judgement; and
- Whether the financial statements, taken as a
whole, are fair, balanced and understandable.Report & Accounts 2019 27
• Consider and make recommendations to the Board, Membership and Attendance
which are to be put to the members for approval
Membership
at the Annual General Meeting, on the appointment,
reappointment and removal of the external auditor. The Board appoints the Committee, which consists of three
Non-Executive Directors. All members of the Committee
• Approve the terms of engagement and the
shall be independent Non-Executive Directors of the Society.
remuneration to be paid to the external auditor in
respect of the audit services provided. The Board appoints the Chairman of the Committee.
• Assess the qualifications, expertise and resources, At least one member of the Audit and Compliance
effectiveness and independence of the Committee should have recent and relevant financial
external auditors. experience. Both Paul Doona and Jim Muir have recent and
relevant financial experience and the Audit and Compliance
• Develop and recommend to the Board the Society’s
Committee as a whole has experience in the financial
policy in relation to the provision of non audit
services sector.
services by the auditor and ensure that the provision
of such services does not impair the external auditor’s
The Committee membership comprises three Non-Executive
independence or objectivity.
Directors: Jim Muir (Chairman), Paul Doona and Zamir
• Assess the adequacy of resources / skills of those Chaudhry who became a member of the Committee
involved in independent compliance monitoring. with effect from 13 September 2018.
• Approve the annual Compliance Monitoring Plan, Attendance
taking into account the risk assessment of each area of
The Committee shall meet sufficiently regularly to discharge
the business.
its duties effectively. It is expected that the Committee shall
• Review the Society’s procedures for detecting and meet at least four times a year.
preventing fraud and bribery.
Only members have the right to attend meetings. However,
• Review the Society’s procedures for whistleblowing. other individuals may be invited to attend all or part of any
meeting as and when appropriate. Such individuals include
• Ensure that arrangements are in place by which
other Non‐Executive Directors, Chief Executive, Finance
staff may, in confidence, raise concerns about possible
Director, representatives of internal and external auditors
improprieties in matters of financial reporting, financial
and the Head of Risk, Compliance and Financial Crime.
control or any other matters.28 Dudley Building Society
Audit and Compliance Committee Report
(continued)
There should be at least one meeting a year where the Internal Audit
Committee meets the external and internal auditors without
The Committee monitors the activities and effectiveness of
Executive Directors present.
internal audit and receives a report on status and progress at
The Head of Risk, Compliance and Financial Crime shall have each meeting. .
direct access to the Chairman and will also report to the
During the year, the Internal Audit Plan covered the
Committee. In addition, she shall meet with the Committee
following areas:-
Chairman at least once a year without Executive
Directors present. • Compliance Monitoring
• Treasury Key Controls
Significant Judgements in relation to the
• Deposits
Financial Statements
• Product Lifecycle
The Committee examined and challenged the key
• ICAAP
assumptions and areas of judgement made in the
• Compliance Framework
preparation of the financial statements.
These were principally:- • Regulatory Returns
• Mortgage Regulation and Underwriting
• Loss provisioning
• Supplier and Outsourcing
The Society calculated impairment provisions based • Conduct Risk
on the policy, methodology and judgements set out in
• IT Resilience / Cyber Risk
Note 1 to the accounts. The Committee has monitored
and approved the appropriateness of the overall level of as well as audits that were commenced but not finalised by
impairment provision and has reviewed and approved 31 March 2019 in the following areas:-
the assumptions and methodology behind the model
• Risk Management Framework
used, including approving an increase in the level of
the Society’s collective provision to reflect • Credit Risk
Brexit uncertainty • Governance
• MI
• Effective Interest Rate (EIR)
The Committee reviewed and approved the
assumptions and methodology behind the model used
to determine effective lives and EIR adjustments.Report & Accounts 2019 29
System of Internal Control External Audit
The Society has in place internal controls and a risk The Committee, on behalf of the Board, conducts a thorough
management framework to safeguard the Members’ and the review of the provision of external audit services every 3
Society’s assets. The Committee is responsible for reviewing years. After careful consideration in a review carried out in
the effectiveness and appropriateness of these processes. early 2017 the Committee recommended to the Board that
The following aspects were reviewed by the Committee KPMG LLP should remain as the Society’s external auditor,
during the year:- subject to an annual Resolution at each AGM. It is expected
that the next review will take place in early 2020 and that
• Compliance monitoring, which was reviewed at each
at this time KPMG will be subject to mandatory rotation
meeting and via a monthly report distributed in months
which will result in a new external auditor being appointed
when no Committee meeting was held.
to report on the accounts for the financial year to 31 March
• The Society’s Policies on: 2022. The Committee evaluates and approves the scope and
content of the external audit plan and approves the level of
- Whistleblowing; fees. It monitors the effectiveness, resources, competency
and independence of the external auditor and was satisfied
- Anti-Money Laundering;
in these matters.
- Gifts and Hospitality;
Audit Committee Effectiveness
- Data Protection;
At least once a year the Committee reviews its own
- Procurement; and
performance, constitution and Terms of Reference to ensure
- Fit and Proper it is operating at maximum effectiveness and recommend
any changes it considers necessary to the Board for approval.
The Committee’s work gave assurance to the Society’s
Board that there were no material breaches of control or Jim Muir
regulatory compliance during this year. Chairman of Audit and Compliance Committee
16 May 201930 Dudley Building Society
Directors’ Remuneration Report
for the Year Ended 31 March 2019
In preparing this report, the Basic Salaries
Society continues to adhere Basic salaries are reviewed annually by undertaking an
external benchmarking exercise which compares salaries in
to the FCA (previously FSA) similar organisations.
Remuneration Code, the Benefits
principles of which the Financial Jeremy Wood and Peter Beddows receive access to a
Conduct Authority requires healthcare cash plan and Jeremy Wood receives private
healthcare cover.
Building Societies to embrace.
Both Executive Directors have access to an online portal
Accordingly, the appropriate offering a range of retail discounts. In the year ending 31
principles and the Society’s March 2018 and 31 March 2019, neither Executive Director
utilised the arrangement.
response are as follows:
Executive Directors’ Contractual Terms
Jeremy Wood and Peter Beddows have service contracts
Principle D.1 - Level and Components of Remuneration dated 17 May 2012 and 6 June 2013 respectively.
They require twelve months’ notice and six months’
Executive Directors’ remuneration should be designed to notice to be given by the Society to Jeremy Wood and
promote the long-term success of the company. Performance- Peter Beddows respectively and six months’ notice by
related elements should be transparent, stretching and the individual. There are no contractual arrangements in
rigorously applied. respect of bonuses, deferred consideration or amended
arrangements in the event of a transfer of engagement.
The Society’s remuneration policy is designed to reward
Directors according to their expertise, experience and overall
contribution to the successful performance of the business.
The Executive Directors’ benefit package is designed to
motivate decision making in the interest of members as
a whole.
Executive Directors’ Emoluments
The remuneration for Executive Directors reflects
responsibilities and roles within the Society. The total
emoluments package is set by the Remuneration
Committee, with the constituent elements of salary and
benefits being agreed between the Committee and the
individual Director.You can also read
