The failure of the Presbyterian Mutual Society - Treasury Contents

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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