Letter from Mark Durkan MP MLA, Chairperson,
Committee for Enterprise, Trade & Investment, to Ian Pearson
MP, HM Treasury
The Committee for Enterprise, Trade & Investment
has been closely following developments in relation to the Presbyterian
Mutual Society since the problems faced by the Society first came
to light late last year. The Committee is concerned with the time
being taken to resolve the situation and with the lack of progress
at Westminster in providing an outcome which would provide much
needed relief to PMS members. Many of the members who are most
in need are those smaller savers who entered into the Society
in the belief that they were merely saving their money in a secure
environment and, at the same time, supporting a worthy mutual
society.
Committee members noted with concern some of
the remarks made by the Secretary of State for Northern Ireland
in relation to the PMS and its members at Northern Ireland Questions
on 3rd June. The Secretary of State referred to the Society as
being "registered" not "regulated". He intimated
that, as the PMS was not under FSA regulation, it was not a Treasury
responsibility as it should have been under regulation here in
Northern Ireland but that this regulation was insufficient. The
Committee's concern at these remarks stems from the fact that
regulation as it stood was adhered to and that the form of regulation
that existed was established prior to devolution. The Department
for Enterprise, Trade & Investment (DETI) had no authority
to regulate the PMS in any other way.
Under relevant Northern Ireland legislation
there is no reference to regulation nor is there reference to
regulation in any of the literature produced by DETI's Registrar.
It is therefore clear to the Committee that, if further regulation
of the PMS was required, it should have been provided by the FSA
and therefore any activities undertaken by the PMS which required
regulation were clearly a Treasury responsibility. You will know
from your time as Minister that DETI has no legal authority in
the area of regulation as defined by the FSA which gets its authority
from the Financial Services and Markets Act 2000. The Committee's
second point of concern is in relation to the regular referral
by the Secretary of State to the members of the PMS as investors
rather than savers with the implication that they had invested
in the Society on a speculative basis. This was very different
from the intentions of those who were saving. At a recent meeting
with the PMS Administrator, he informed me that PMS members held
"withdrawable shares" in the form of savings which could
be withdrawn by members at any time and not therefore the normal
type of share capital which investors hold. It is clear to the
Committee that PMS members, especially those with less than £20,000
of savings, saw themselves as savers and should be referred to
and treated as such. These people were totally unaware of the
risks associated with their savings. Currently, the PMS members
who have no prospect of a return are those with less than £20,000
saved as they are considered shareholders. These are the smaller
savers and they are left with nothing. They are the people who
were acting least like investors. Some of the PMS "creditors"
may have been considered investors as they saved large amounts
of money in the hope of gaining a better than average return.
These people will get some return on their investments over time
under the scenario which the Administrator has been able to offer.
However, the Committee believes that morally, a solution which
provides a return for everybody except the smaller savers, who
are often those in most need, is totally unacceptable. As demonstrated
by the assistance provided to members of the Dunfermline Building
Society under similar circumstances, Government has a responsibility
to these small PMS savers.
The Committee is not suggesting that Government
was completely to blame for the problems faced by the PMS, however,
it is widely recognised that the run on the PMS would not have
occurred had Government not intervened with the banks in providing
£50,000 deposit guarantees to savers. Also, given the guarantees
provided to UK customers of failing Icelandic banks by both the
FSA and HM Treasury under similar circumstances in October last
year, the Committee firmly believes that a precedent has been
set, and that this precedent should be extended to include members
of the PMS as it was to include members of the Dunfermline Building
Society.
In the case of the Dunfermline Building Society,
Government used a largely nationalised bank to admit the failing
assets of the Dunfermline to an enhancement fund in recognition
of the fact that those assets will be properly managed and will
recover in time. It was also recognised that this move would restore
the confidence of members. The Committee can see no reason why
a similar approach cannot be taken by Government in relation to
the PMS. By moving PMS assets into an enhancement fund in one
of the local banks, assets would be properly managed, would recover
in time and, given the guarantees associated with such a move,
the confidence of PMS members would be restored.
The Committee urges HM Treasury to adopt such
an approach and to do so at the earliest opportunity. In order
to assist in providing a solution to meet the needs of PMS members
and to draw a close to this matter as quickly as possible, the
Committee is happy to meet with you to discuss possible ways forward.
We feel this would help to resolve the matter and end the hardship
and heartache currently being endured by so many members of the
PMS.. The Committee is also aware that the Treasury review into
credit unions and industrial and provident societies in Northern
Ireland is due to report in the near future and should put regulation
of these institutions on a new footing in the future. The Committee
feels it would be inappropriate to take these steps without firstly
resolving the predicament of the PMS and its savers.
16 June 2009
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