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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