REPORT & ACCOUNTS 2019 - Dudley Building Society

Page created by Jamie Hicks
 
CONTINUE READING
REPORT & ACCOUNTS 2019 - Dudley Building Society
REPORT &
ACCOUNTS
2019
REPORT & ACCOUNTS 2019 - Dudley Building Society
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 - Dudley Building Society
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
REPORT & ACCOUNTS 2019 - Dudley Building Society
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 2019 - Dudley Building Society
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
REPORT & ACCOUNTS 2019 - Dudley Building Society
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 2019 - Dudley Building Society
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
REPORT & ACCOUNTS 2019 - Dudley Building Society
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 - Dudley Building Society
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
REPORT & ACCOUNTS 2019 - Dudley Building Society
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 Chairman
26   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 2019
30   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