The failure of the Presbyterian Mutual Society - Treasury Contents

4 Never again?

67.  During our inquiry the role of, and framework surrounding, credit unions were also brought to our attention, as they play a prominent role in the provision of Northern Ireland's financial services and are also governed by the Registry.

68.  In Northern Ireland, credit unions are governed by devolved legislation. The subject matter of the Credit Unions (Northern Ireland) Order 1985 is specifically excluded from the financial activity that is reserved to Westminster.[55] This legislation also provides for specific restrictions in activities that can be carried out. Article 24 of the Order prohibits the 'business of banking'. Credit unions are actively supervised by the Registry to ensure that there are no contraventions.

69.  In Great Britain the FSA provides both the registration and regulation function for credit unions. A credit union may not be registered if it has not applied to the FSA for permission under FSMA to accept deposits. A credit union in Great Britain can offer a far wider range of services than can credit unions in Northern Ireland.

70.  A recent report by the Enterprise, Trade and Investment Committee of the Northern Ireland Assembly recommended that credit unions in Northern Ireland should be regulated by the FSA. A subsequent Treasury review concluded:

that the Government together with the Assembly should consult on bringing NI credit unions within the scope of Financial Services Authority (FSA) regulation, while leaving the legislative and registration functions with the Northern Ireland Assembly and the Department of Enterprise, Trade and Investment Northern Ireland (DETINI). This would bring certainty on compensation arrangements to NI credit unions members, while giving the NI Assembly continuing freedom to respond to the distinctive nature of credit unions in NI.

This action has the support of the unions themselves, who wish to provide more than basic financial services to their members.

71.  In the course of our inquiry we asked whether there was a danger that a credit union might expand its activities beyond those permitted. The dangers are less than those of an unauthorised IPS expansion. Not only are credit unions subject to some regulation, two voluntary schemes have been set up to aid credit unions which find themselves in a similar situation to the PMS. The Irish League of Credit Unions and the Ulster League of Credit Unions, whose membership includes 90% of credit unions in Northern Ireland, operate in a similar way, guaranteeing members their savings as a last resort although they can provide stabilisation funding to assist ailing unions. Nonetheless, the Northern Ireland Executive and the Assembly Committee considered that the FSA should be given power to regulate credit unions in Northern Ireland, and that this should not be delayed.

72.  On Monday 25 January Mr Durkan put forward an amendment to the Financial Services Bill. This Bill has been introduced primarily to manage systemic risk and protect financial stability. New Clause 10 proposed the removal from the Financial Services and Markets Act 2000 (Exemption) Order 2001 of the exemption which applies to credit unions. His intention was to allow credit unions to expand their services into activities which would more normally be regulated, and to make the FSA responsible for their regulation. The credit unions however have expressed a wish for the registration function to remain with the devolved Department of Enterprise, Trade and Investment. This would ensure that links with the Northern Ireland Executive remained strong. The Economic Secretary, Ian Pearson MP, indicated that the amendment would not work as intended for technical reasons, and that the transfer of regulatory functions to the FSA would be complex, requiring changes to legislation in the United Kingdom and in Northern Ireland and revision of the FSA's rule book. However, the Minister suggested that it was possible that the Bill might be amended in the Lords:

If the Government were to receive a formal notification from the Northern Ireland Executive, clearly backed by the Assembly, to the effect that it did not feel there was a need to consult, and if agreement could be reached with the FSA on the level of detail needed to enable the change to be made with confidence that the other elements could be accommodated, by all means let us have a look at it. We do not have a lot of time left, but if my hon. Friend the Member for Foyle can get those messages from the Northern Ireland Executive and Assembly back to us as a Government, we will of course try and look at them and do what we can.[56]

73.  Since then HM Treasury has told us:

The Treasury is therefore currently investigating urgently with both Northern Ireland and with the FSA how the changes that all parties regard as urgent and essential can most effectively be brought about. However, this course may present its own legal challenges, as well as operational difficulties for the FSA, if full and proper consideration is not focussed on the timing of implementation of appropriate legislation.[57]

74.  We support the principle of FSA regulation of credit unions in Northern Ireland. Credit unions are prominent in the society of Northern Ireland and it would benefit their many members if they were able to offer some of the services provided by their counterparts in Great Britain. Moreover, there is a regulatory gap which needs to be filled. Allowing credit unions in Northern Ireland to be regulated by the FSA would fill that gap.

75.  However, we note that the registration function is to be retained by the Northern Ireland Department of Enterprise, Trade and Investment. While we understand the rationale for this, we recommend that the Department and the FSA be given powers to exchange information and work together to ensure that no future regulatory gaps arise.

55   Northern Ireland Act 1998 Schedule 3 paragraph 23 Back

56   Official Report, 25 January 2010, c 615 Back

57   Ev 22 Back

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