(1) For subsection (1) of section 5 (establishment, constitution and powers) of the [1986 c. 53.] Building Societies Act 1986 ("the 1986 Act") there shall be substituted the following subsection -

"(1) A society may be established under this Act if (and only if) it complies with the following requirements, namely -

(a) its purpose or principal purpose is that of making loans which are secured on residential property and are funded substantially by its members; and

(b) its principal office is in the United Kingdom."

(2) After subsection (4) of that section there shall be inserted the following subsection -

"(4A) If, after its establishment, a building society fails to comply with the requirements imposed by subsection (1)(a) or (b) above -

(a) the powers conferred on the Commission by section 36 or 37 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act."

(3) For subsections (5) to (7) of that section there shall be substituted the following subsection -