COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT
OFFICIAL REPORT
(Hansard)
Inquiry into Credit Unions
13 November 2008
Members present for all or part of the proceedings:
Mr Mark Durkan (Chairperson)
Mr Paul Butler
Mr Leslie Cree
Mr Simon Hamilton
Dr Alasdair McDonnell
Mr Alan McFarland
Mr Gerry McHugh
Mr Robin Newton
Witnesses:
Mr Mike Bohill )
Mr Paul Bingham ) Department of Enterprise, Trade and Investment
Mr Sandy Williamson )
The Chairperson (Mr Durkan):
This session is a briefing from departmental officials on our inquiry into credit unions. I welcome Mike Bohill, who is head of business regulation; he, Sandy Williamson and Paul Bingham from Companies Registry will provide the briefing. The relevant papers are in members’ packs, along with possible lines of questioning based on issues that have been previously pursued. The packs also contain an updated briefing paper from the Department, as well as its original submission. Furthermore, the packs contain a press extract from ‘The Irish Times’, which reflects the words of admonition from the South’s financial regulator. There is also an Assembly Library and Research paper on the role of credit unions in community enterprise initiatives in the South.
Mr Mike Bohill (Department of Enterprise, Trade and Investment):
I will take a few moments to provide an update on some issues that have arisen since we produced our comprehensive briefing paper at the end of May. More recently, we produced a shorter briefing paper on the regulation of credit unions in Great Britain and Northern Ireland.
The main development since we last appeared before the Committee is that the Treasury issued a consultation document setting out seven key changes to the legislation governing credit unions in Great Britain. Those changes are proposals for replacing the common bond requirement for credit unions with a field of membership test; performing the requirements relating to membership qualifications and renaming them common bonds; removing the restriction on non-qualifying members of credit unions; repealing the attachment requirements, which restrict the withdrawal of shares; allowing credit unions to admit bodies corporate and unincorporated associations or partnerships to the membership of credit unions; abolishing the 8% per annum limit on dividends payable by credit unions; and allowing credit unions to charge the market rate for providing ancillary services to their members.
The Treasury issued a formal consultation document, for which the closing date for responses was 15 October. Draft legislation has not yet been prepared, and we understand from contacts with the Treasury that the target date for undertaking the legislation is April 2009. That is a further development on the credit union side in Great Britain.
Furthermore, since we last met we have continued exploratory discussions with the Treasury and with our opposite numbers in the Financial Services Authority about the options that we identified in our original paper and, in particular, the scope of credit unions to access deposit protection through the financial services compensation scheme.
The exploratory discussions did not involve Ministers or senior members of the Treasury. However, the key issue to emerge from the discussions is the belief of the FSA — and I think that it is a view that is shared by the Treasury — that regulatory responsibility for Northern Ireland credit unions should not be divided between the FSA and the Department.
We have requested discussions with the Irish League of Credit Unions to discuss its preferred option for the way ahead, and we hope that those discussions will happen soon.
The Chairperson:
You say that the Treasury does not want regulatory responsibilities to be split. What is the view of DETI?
Mr Bohill:
DETI wants to find a way round that.
Mr Cree:
That is encouraging.
The Chairperson:
Do you see a way round it?
Mr Bohill:
It is not an administrative matter solely: there is legislation that governs the regulation of credit unions in GB and legislation that governs Northern Ireland’s credit unions. Any changes to the status quo will involve legislative change. That is one consideration. The second consideration is finding an acceptable modus operandi that will address the Treasury’s concerns. We have not yet bottomed out all the Treasury’s concerns; that is work in progress.
The Chairperson:
Has the Assembly the competence to introduce legislation that will allow credit unions in Northern Ireland to offer a wider range of services than at present and offer services that compare with their counterparts elsewhere? Are some of those areas deemed to be part of the business of banking and, therefore, not within the remit of the Assembly.
Mr Bohill:
They are outside the Assembly’s responsibilities. The additional services that credit unions have been talking about are reserved matters that are regulated by the Financial Services Authority.
The Chairperson:
That legislation, therefore, is not in the gift of the Minister, the Department or the Assembly.
Mr Bohill:
The Treasury and Westminster have in their gift the power to make legislative amendments that would embrace Northern Ireland credit unions.
The Chairperson:
The Assembly would be required merely to table a legislative consent motion to accept the legislation. The issue is the willingness of the Treasury. We heard from the FSA and from your discussions with the Treasury that it does not want to split regulations: it wants to continue regulating some services while the Department continues to regulate as it does now. Would the FSA delegate its regulatory role to the Department of Enterprise, Trade and Investment?
Mr Bohill:
The FSA strongly opposes delegating its responsibilities en masse to DETI.
The Chairperson:
The FSA told us that. However, what is the view of DETI?
Mr Bohill:
DETI wants to know whether other views can be considered apart from delegating all responsibilities to DETI.
Dr McDonnell:
Many of us are enthusiastic supporters of credit unions and feel that they could do much more. Would it be possible to have a two-tier credit union system? One tier would consist of the advanced credit unions — those with the bells and whistles — and the other would comprise the fledgling credit unions. Credit unions could become great drivers if they were allowed to operate in the social economies.
Mr Bohill:
There would be advantages and disadvantages to such a model. There would be an advantage in being registered with the FSA and in enjoying all the attendant benefits, including depositor protection; however, there would be a disadvantage to the other class of credit unions, which may not want to provide additional financial services and which preferred local regulation by DETI. That other class would not have the cover that the credit unions registered with the FSA would have.
Dr McDonnell:
That difficulty should not be insurmountable because businesses are regulated on various levels.
Mr Bohill:
You have put your finger on one of the options, and we are talking to the FSA about it.
The Chairperson:
My impression is that the FSA is not enamoured of dividing credit unions here into A and B divisions, where some fall to the FSA to regulate and others to another regulator. The FSA seems to regard that position as susceptible to all the dangers of split responsibility, which it wants to avoid.
Mr Bohill:
I share the FSA’s concerns about split regulation, where the FSA regulates one part of a credit union and DETI regulates another. That is fraught with danger.
The Chairperson:
The danger of a split is that there would be different regulators for different services provided by the same credit union. However, is the same danger present if there were different regulators for different credit unions, which is what Alasdair suggests?
Mr Bohill:
Perhaps the latter would be more manageable.
Dr McDonnell:
Businesses are regulated at various levels, depending on their leverage. I have some knowledge of the travel agency business. One can set up a bronze- or basic-level travel agency, which is a shop on a street corner run as a one- or two-person business. Such businesses are regulated, by and large, by ABTA (Association of British Travel Agents), even down to airline tickets and so on. A travel business may graduate to IATA (International Air Transport Association) regulation; IATA is like the FSA. If a travel business is very ambitious, it can graduate to the gold standard, which is regulation by ATOL (Air Travel Organisers’ Licensing), an international organisation. That is the regulation system for the travel business: all three regulators interconnect.
By analogy, the FSA could co-operate with DETI on the regulation of credit unions, with free exchange of information between them.
Mr Bohill:
To be fair to the FSA, it is not a one-package-suits-all regulator; it has different levels of regulation, depending on the scale and complexity of an individual credit union.
Mr Sandy Williamson (Department of Enterprise, Trade and Investment):
We envisage two versions of credit unions regulated by the FSA. Version one is a basic credit union, requirements for which are less onerous than is necessary for compliance with FSA regulations. Version two is for more advanced credit unions, and that version best suits the type of credit union that wishes to deliver a range of enhanced services.
At the moment, the FSA draws a similar distinction between the two types. There would be perhaps only 10 or 20 version-two credit unions in GB; they are small compared to the total number of credit unions in GB.
Mr Bohill:
An aspect that we seek to explore further with the FSA is whether there might be some form of memorandum of understanding or inter-agency agreement, whereby less complex credit unions — I am not sure whether they fall into version one or version two — are regulated by DETI, leaving the larger, more ambitious credit unions to be regulated by the FSA.
The Chairperson:
During an evidence session with the Committee, representatives from the FSA reflected on the nature of their engagement with credit unions in Great Britain. During another evidence session, Mark Lyonette, who appeared in his capacity as a member of the Treasury’s Financial Inclusion Taskforce, spoke about his experiences as chief executive of the Association of British Credit Unions Ltd (ABCUL), and he offered a fairly positive assessment of credit unions’ relationship with the FSA. I may want to revisit some of those points, depending on whether members explore them.
Mr Hamilton:
Our discussions have evolved to the point where we are no longer talking about what services should be offered and their effect, but whether regulation should be introduced and how best to implement what we want to achieve.
Your contribution has been interesting. The Department had discussed setting up a separate company altogether. From my recollection, the Financial Services Authority was not as badly disposed to that idea as it was to some of the others. Can you go into more detail about your latest discussions with the credit unions on that issue? Since you are due to speak again to representatives from the Irish League of Credit Unions, perhaps you have no fresh information.
Mr Bohill:
It is an agenda item for discussion.
Mr Hamilton:
Is that a possible way forward?
Mr Bohill:
We proposed that option to the league several years ago.
The Chairperson:
Was that in the days of Angela Smith?
Mr Bohill:
That is correct.
Mr Hamilton:
That is ancient history now.
The Chairperson:
I remember the meeting.
Mr Bohill:
It is an option that we want to address.
Mr Hamilton:
It is an interesting possibility.
The Chairperson:
During the evidence session, we suggested that option to the FSA representatives. If a company called credit union financial services were to be formed, would the FSA be able to regulate it?
Mr Bohill:
The short answer is that, by law, such a newly formed company would be required to register.
The Chairperson:
The FSA said that it was not unusual for it to regulate financial bodies that are owned by unregulated shareholders.
Mr Bohill:
It is no more unusual than the Progressive Building Society being regulated by the FSA.
The Chairperson:
Part of the problem for members, apart from the issue about where regulation is most feasibly located, is how to afford the opportunity of regulation to credit unions that want to avail of it, without placing an obligation — and perhaps an impossible challenge — on those that do not.
However, it is difficult come up with a solution that does not involve dual or parallel regulation. We have been told that the only way to open services for some credit unions is to go the FSA route; however, how can some credit unions take the FSA route without forcing all credit unions to join them? The position of the FSA and the Treasury is vital to whether the Department is amenable to parallel regulation.
Mr Bohill:
The Department is amenable. Our objective is to maximise the potential of the credit union movement in Northern Ireland; we are not in the business of stymieing the development of credit unions. We try to maximise the flexibility of the credit union movement, and we have made a variety of changes to the regulatory framework over the past few years. Sandy can detail those if you want. However, we came up against a bar.
We cannot go any further because to do so would be to move into reserved matters. We know the position of the FSA and we know that it is shared by the Treasury — a representative from the FSA has already given evidence to the Committee. Nevertheless, it is worth having further discussions with those organisations to see if we can find a way round the issues. The Department is engaged in that at the moment.
The Chairperson:
The representative from the FSA made the position of that organisation clear, although he also said that it would always be influenced by the views of the Treasury. Our representations may have to focus in that direction in order to open up possibilities. If the Treasury is absolutely immutable on allowing the FSA a regulatory role alongside the Department and if legislation brought credit unions here under FSA regulation, would the Northern Ireland Act 1998, which specifically devolved the Credit Union ( Northern Ireland) Order 1985, have to be amended?
Mr Bohill:
No; although Sandy can keep me right if I am stepping out of line.
The Chairperson:
It is a bit of legal pedantry, but I want to cover it in case it becomes a serious issue.
Mr Bohill:
The Departmental Solicitor’s Office has confirmed that it would not require any amendment to the Northern Ireland Act 1998.
Mr Williamson:
We do not have much detail on the legislative changes that will be required; it depends on the final option. However, the Credit Union ( Northern Ireland) Order 1985 will need to be changed, and corresponding changes will need to be made to GB legislation, such as the Financial Services and Markets Act 2000, and other legislation. It depends on the final options that are selected.
The Chairperson:
Therefore if new financial services legislation were enacted at Westminster, it would not repeal the relevant part of the Northern Ireland Act 1998; it would simply supersede those provisions.
Mr Bohill:
That is correct. I cannot remember the exact advice of the Departmental Solicitor’s Office, but its interpretation is that no changes would need to be made to the Northern Ireland Act 1998. I am certain of that.
The Chairperson:
I referred earlier to the press extracts in our members’ packs; have you any observations on the views that were expressed by the regulator in the South?
Mr Bohill:
I am not surprised at those views. The Irish League of Credit Unions has an interest in securing changes. I heard your remarks as well; perhaps the press release did not quite read as the league had wanted it to.
The Chairperson:
Thank you for your presentation. The Committee is continuing its work on this issue, and, as you know, we will hear more evidence in the coming weeks. We hope to produce a report early in the new year. There is a great deal of interest in the position of credit unions, not least because of the current climate. We will keep you informed of any progress.