This study examines features of delegated monitoring in the context of major defalcations in two small-sized building societies (namely the Wakefield and the Grays). The factors causing the defalcations were the dominance of an individual over a building society's systems, and poor systems of internal control and supervision. The auditors of both societies were criticised for failing to discharge their duties as expected under the Building Societies Act 1960, and the Wakefield and Grays cases constituted a turning point in the supervision of retail financial intermediaries. Previously, the Chief Registrar of Friendly Societies had adopted a reactive approach to supervision, which effectively delegated the monitoring of the societies to external auditors. The defalcations revealed that there was a lack of productive communication between the Registry and external auditors. As a result, it was felt that there was a need to reform and adopt a proactive approach to supervision under which the Registry was to examine directly the quality of the auditors' work.