The Presbyterian Mutual Society (PMS), a Northern
Ireland Industrial and Provident Society (IPS), was subjected
to a run on its deposits in October 2008, which resulted in its
entering administration. The estimated realisation value of its
assets is significantly less than its liabilities. There is some
prospect of recovering members' money if the administration is
allowed to run for a long time, but that would continue to mean
that members of the Society, who might have pressing needs, would
not have access to their funds. Moreover, there is legal uncertainty
as to whether shareholding members of the Society are entitled
to the return of any of their funds until those who have made
loans to the Society are repaid.
The PMS was not regulated by the FSA, nor was it
part of the Financial Services Compensation Scheme. Its members
have no legal entitlement to reimbursement. In future we want
a system where, in cases like this, it would be crystal clear
that deposits were made at the depositors' own risk, and there
was no question of government assistance. It should be clear that
it is the directors, not the government, or the regulator, who
have ultimate responsibility for such an institution's management.
We do not believe that, as a general rule, the taxpayer should
stand behind financial institutions.
The banking sector in Northern Ireland is regulated
by the FSA, just as it is in Great Britain. There were no clear
indications that the regulatory system for IPSs differed between
Northern Ireland and Great Britain. There was a regulatory gap
which was neither publicised nor filled. It is possible that a
society which was mutual in life will prove to be far from mutual
in death, and that small savers will lose out most heavily.
If these savers are to be assisted, the United Kingdom
Government and Northern Ireland Executive must act together to
ensure that individual PMS members do not suffer unduly. We are
not dogmatic about what approach is best; we are however clear
that a remedy must be found.
On a related matter there have been calls for the
FSA to regulate credit unions in Northern Ireland. We support
such a proposal, but consider that if regulation is transferred
in this way while responsibility for registration remains with
the Department of Enterprise, Trade and Investment Northern Ireland
there should be provisions to ensure close cooperation between
the Registrar and the FSA to ensure that no regulatory gaps arise.