The failure of the Presbyterian Mutual Society - Treasury Contents

Letter from Ed Mayo, Secretary General, Co-operativesUK, to the Chairman of the Committee, dated 4 February 2010

  Following the recent Treasury Select Committee visit to Northern Ireland to hear oral evidence in relation to the Presbyterian Mutual Society, I feel it would be helpful for Co-operativesUK to contact you in this regard.

  Co-operativesUK is the trade association for co-operatives, but we are a voluntary association and Presbyterian Mutual Society unusually was not a member. Our experience is that Presbyterian Mutual is in many ways an exceptional case and it does raise questions, but less about a gap in current regulation and more about the enforcement of existing rules that PM flouted and the encouragement of good practice, which Co-operativesUK exists to take forward.

  Co-operatives are businesses and as such will fail from time to time. Our sense is that the failure rate is lower than for business more widely, but of course the wider ownership means that any such loss is regrettable and keenly felt. Whilst we should not expect a zero-failure regime for regulation, Presbyterian Mutual was acting outside of the existing rules and we believe that the best way to protect and promote the consumer interest is to insist on better enforcement and to encourage better standards rather than fall back on new regulation which could discourage new community and co-operative enterprises. In particular, we believe that the registration function has been neglected in NI and the UK more widely and we would urge the Committee to press the current regulators to act on this.

  In relation to this case the role of the registrars in both Northern Ireland and Great Britain is to register societies. Both are at pains to point out that they do not regulate societies. This however is not quite that clear cut as there are some functions undertaken by the registrar which could be regarded as regulation.

  Representing co-operative enterprise throughout the United Kingdom of Great Britain and Northern Ireland, the Channel Islands and the Isle of Man. The legislation for societies as compared to companies gives little direction as to how as a society should operate, placing a strong reliance on each individual society's rulebook. The registrar has a extremely important role regarding rulebooks in that a society cannot be registered unless the registrar is satisfied the rulebook meets the requirements of the legislation; likewise any amendments to that rulebook have to be checked and signed off by the registrar before they can be acted upon.

  The first three objects in the rulebook of the Presbyterian Mutual Society are as follows:

    (a) to promote thrift amongst its members by the accumulation of their savings;

    (b) to use and the manage such savings for the mutual benefit of members; and

    (c) to create a source of credit for the benefit of its members at a fair and reasonable rate of interest.

  Section 1.3 of the Industrial and Provident Societies Act (Northern Ireland) 1969 which refers to the type of societies that can be registered states:

    In this section, the expression "co-operative society" does not include a society which carries on, or intends to carry on, business with the object of making profits mainly for the payment of interest, dividends or bonuses on money invested or deposited with, or lent to, the society or any other person.

  As the registrar should have been mindful of the above when registering the society one has to question how much consideration was given to the society's ability to be registered under the Act in the first place.

  It also seems evident from the oral evidence of the members of the society there was a great deal of trust placed in the society and its officers by being part of the Presbyterian Church which led to a relatively unique perspective from members investing.

  The co-operative movement through membership of Co-operativesUK has a long and reliable history of self regulation especially in regard to governance and financial monitoring.

  In the 1980's our Co-operative Performance Committee was established. Its role is to monitor and influence accounting legislation on behalf of our members and to promote and encourage best practice. In 1996 this Committee produced a recommendation that all co-operatives of a certain size in membership of Co-operativesUK should publish half year reports in the form of an interim financial report which is then proactively monitored by Co-operativesUK. In 1995 the first edition of its code of best practice on corporate governance was published, long before it became an issue in the wider corporate world. Compliance with this code by our members is monitored and reported on annually.

  A code of best practice on the use and advertising of withdrawable share capital was first developed with HM Treasury in 2000 and subsequently updated in conjunction with the FSA in 2005.

  We have been working on the modernisation of the legislation for a number of years; this work is resulting in ongoing legal reform covering a range of areas including the powers available to the registrar in relation to societies.

  We are also mindful that the environment in which societies operate has previously been neglected. We have been proactive in gaining commitment from the FSA to put the register of societies on line so that it is easily searchable and accessible to the general public.

  We would urge you as a committee to consider the considerable amount of self regulation undertaken by the sector, and its proactive engagement in legislation reform. We would further encourage you to engage with ourselves and the co-operative movement; whilst considering your findings in particular to ensure the current commitment to modernisation is continued.

—the "Financial Services and Markets Act 2000 (Regulated Activities) Order 2001": and

—the "Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001".

This is not an exhaustive list.

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