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The failure of the Presbyterian Mutual Society - Treasury Contents


Summary


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.




 
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Prepared 18 February 2010