Considered in Grand Committee
With the leave of the Committee, I wonder whether I might make a statement before the Minister rises and request that he withdraw this order on the following grounds. First, much of the relevant material of this order is still under consultation by the Financial Services Authority. The consultation concludes on 31 October and today is 17 October. Secondly, I draw the Minister’s attention to the report of the Merits of Statutory Instruments Committee, which, on 13 October, wrote to the Treasury with a reminder of the need to make summaries of consultation responses available at the time an instrument is laid and to ensure that the summary for this draft instrument is available before the debate in this House.
Thirdly, a lot of the scrutiny of this order is dependent on the Opposition and other noble Lords having access to the results of the consultation so that they can properly and fully scrutinise the consequences of the order. The results of the consultation are not available and it is therefore not possible for noble Lords to effectively scrutinise this legislation. If we proceed, it would be the sort of action that brings Parliament into disrepute.
My Lords, there is perhaps some confusion about what we are doing here today and what else needs to be done in connection with this order from the Joint Committee on Statutory Instruments.
Let me start by explaining the situation we are in, because it is complicated. The previous Government in March 2010 made a decision—a joint decision of Treasury Ministers and Ministers of the Department of Enterprise, Trade and Investment in Northern Ireland—that credit unions in Northern Ireland should no longer be exempt from regulation under the Financial Services and Markets Act 2000 and that responsibility for their regulation should transfer from the Department of Enterprise, Trade and Investment to the Financial Services Authority. That decision was taken by the previous Government and we are considering the order today. As the Deputy Chairman reminded us, the formal business is moved on the Floor of the House. We are considering the statutory instrument that puts into place a decision by the previous Government.
The running consultation is about consequential provisions relating to the details of the transfer, the transitional arrangements, grandfathering, temporary powers for the FSA, how information will transfer between the department and the FSA, and consequential issues to do with money laundering and terrorist financing. Those will all be dealt with—to the extent they need to be—in the appropriate way through instruments or regulation. Therefore, what is being consulted at the moment is nothing that should detain us from putting in place a decision by the previous Government with which this Government completely agree. In our view, it is about time that we got on with the enabling instrument and there is no reason not to allow the consultation on the “how” of the transfer to carry on in the normal way.
The Treasury is publishing today responses to the original policy proposals in principle. However, the decision was originally taken and announced in a joint document by the UK Government and the Northern Ireland department in March 2010. I think we should turn to the substance of the order.
I am grateful to the Minister for giving way, but given my noble friend Lord Eatwell’s comments and the confusion that the Minister alleges my noble friend had, would it not have been easier to wait? Is there any reason why the Minister wants to move this Motion now, given that it would have been easier to consider the two orders together for the sake of clarity?
I am not alleging any confusion other than that this is a complicated series of manoeuvres that has to be gone through to effect the transfer. It is quite right that we should consult on the how. It is for this Committee to decide the simple and important issue of principle as to whether the people of Northern Ireland, 50 per cent of whose population have their money invested in credit unions, are given the proper and full protection which FSA regulation would give them. Of course it is important that the how of the transfer is properly considered, which is what the current consultation is all about, but it might be sensible if we considered the arguments—which I think are extremely clear cut; there is nothing between the previous Government and the present Government on this—that we need to get on and give those in Northern Ireland, a very significant number of people, the protection afforded to those who put deposits in banks in the whole of the United Kingdom and currently put deposits in credit unions in Great Britain.
Perhaps, if the Minister would allow me, we can clarify this matter. In the consultation document on the FSA website, the first question is:
“Do you agree with the proposed legislative measures outlined in chapter 3?”.
The order before us today is included in Chapter 3. Does the Minister know the answer to that question from the people of Northern Ireland?
My Lords, I believe that the Minister has not yet finished the speech he wishes to make in order to put the Motion. We must first put the Motion before it can be discussed, so we must wait until he is ready to say that he wishes to put it.
My Lords, credit unions operate throughout the United Kingdom, providing savings and loans services, mostly in their local communities. Although the credit union sector in Great Britain is relatively small, it makes a large contribution to the financial inclusion agenda by operating in areas of poverty where local communities often lack access to affordable credit. In contrast, the credit union sector in Northern Ireland is extremely significant within the financial services landscape. Approximately 50 per cent of the adult population of Northern Ireland are members of their local credit union.
That is why, quite properly, the previous Government decided that that situation needed to be looked at and resolved. It was the belief of the previous Government, confirmed by the present Government, that credit unions in Northern Ireland should be brought under the Financial Services and Markets Act. That is for three main reasons.
The first is for reasons of financial stability. Given the significance of credit unions in Northern Ireland, the collapse of the sector would have a devastating impact on entire communities’ access to financial services and credit facilities.
Secondly, the order will ensure that the deposits of each Northern Ireland credit union member will be protected by the Financial Services Compensation Scheme, the FSCS. This will guarantee each deposit up to the £85,000 limit, in line with credit union members in Great Britain. The current legislation exempts these credit unions from this guarantee. As a result, there is a distortion in the level of consumer protection provided for credit unions across the United Kingdom. Removing the current exemption from the Financial Services and Markets Act will address this distortion and prevent members from relying on untested depositor protection schemes run by the various trade bodies across Northern Ireland and the Republic of Ireland. Those credit unions that are unaffiliated with one of those trade bodies currently have no depositor protection. That is wrong. Northern Irish credit union depositors should be put on the same footing as those elsewhere in the United Kingdom; and as with bank depositors.
Thirdly, by removing the exemption from the Financial Services and Markets Act, the members of each Northern Ireland credit union will have recourse to the Financial Ombudsman Service if they encounter any dispute with their credit union. Again, this is an aspect of consumer protection not currently afforded to members in Northern Ireland and is another positive aspect of the proposed legislative changes.
The proposed changes will, of course, entail the industry bearing some additional costs. These costs are largely with respect to training staff on the new regulatory demands, amending computer systems and contributing to the FSCS levy. However, it is the Government’s view that these mostly upfront costs are a relatively small price for the sector to pay for increased consumer protection and financial stability. Moreover, the increased confidence in the sector that will result has the potential to have a positive impact to the extent that the Northern Ireland credit unions will be better placed to attract additional deposits. This uplift in confidence was seen in the Great Britain credit union sector after it was brought under the Financial Services and Markets Act in 2002. While the initial impact on UK financial services may have gone unnoticed, the growth of the Great Britain credit union sector has been extremely strong since the transfer.
The Government strongly believe, as did the previous Government, that Northern Irish depositors should not be treated any differently from depositors in Great Britain. These proposals go a long way to levelling the playing field in depositor protection across the United Kingdom and are eagerly awaited by those seeking peace of mind about their family finances. They also support the Government’s aim of promoting the mutuals sector in the United Kingdom as a whole, and in doing so have a positive impact on the diversity of financial services. For example, Northern Ireland credit unions will, subject to normal FSA approval, be free to offer basic products such as ISAs and mortgages. This can only be good for consumers and the mutuals sector.
While I look forward to hearing your Lordships’ views on these proposals, I believe that they are uncontroversial and have the support of both the current and previous Government. A decision on them was announced by the previous Government in March 2010. The consultation responses to the original question have been published. The consultation on the “how” of the transfer will, as the noble Lord, Lord Eatwell, says, carry on until 31 October, but today we are considering a very simple order that agrees the principle of the transfer. The details of how the transfer will be effected will, as I said at the outset, be the subject of either further orders or regulation in the normal course. I hope that the proposals will not be too long detained by procedural wrangling, which might get in the way of the Northern Irish people getting the protection that they deserve. I hope the Committee will offer its support to the order.
My Lords, I put a question to the noble Lord, which he has not answered, regarding the response of the people of Northern Ireland to the question about whether they agree with the order. On this side of the Committee we are entirely supportive of the objectives of the order. That is not the point that I am raising. My point is that the Merits Committee wrote to the Treasury on 13 October, reminding it to ensure that the summary of this draft instrument was available before the debate in the House. I have not been able to find a summary of the consultation on this draft instrument. Without the reactions of the people of Northern Ireland, who are closely and greatly involved in credit unions, as the Minister pointed out, it is very difficult to offer the order proper scrutiny. Therefore, I cannot continue, other than to say that it would be appropriate for the Treasury to ensure that relevant consultation material is published, as the Merits Committee requires, prior to consideration of draft legislation by the Committee.
My Lords, there seems to be a muddle over the consultation. The Explanatory Memorandum said that the summary of responses to the March 2010 consultation will be published shortly. I think the Minister said that it was published today. I do not know when the March 2010 consultation formally finished, but it was presumably quite a long time ago. It is indeed unsatisfactory that we do not have the results of that consultation.
However, I think it is appropriate to look at what the order says. It is an extraordinarily short order, and it says nothing, as the Minister said, about the detail of how this change will be effected. All it says is that the change will be effected and that Northern Irish credit unions will be brought under the ambit of the FSA. I do not know, but I would be surprised if there was a single, solitary soul in Northern Ireland who would oppose that change, particularly if they look at what has been happening south of the border in recent weeks. Only a couple of weeks ago, the Irish Finance Minister was called upon to inject €1 billion into the credit union sector south of the border, because many of those credit unions—and we are talking about a sector that is as predominant as it is north of the border—found themselves, as a result of rising unemployment and declining income, in some difficulties. Of the 407 credit unions in the Republic of Ireland, some 79 are now in need of this injection of capital. It seems likely not only that that will need to happen but that there will have to be some consolidation in the sector and smaller credit unions will need to merge.
My question to the Minister is, in a completely different sense to that of the noble Lord, Lord Eatwell, why it has taken the Government so long to bring this legislation forward, given that the majority of the population of Northern Ireland would be affected if their credit union got into difficulty. Even if we approve this order in due course, it does not come into effect until 31 March next year. My question to the Minister was going to be, and remains, whether he has any evidence that the travails that afflict the Republic of Ireland credit union sector are spreading north. Does he envisage that any individual credit unions north of the border will get into difficulties over the coming weeks and months? In the absence of any covering FSA jurisdiction, what would the Government’s response be were they to find themselves in the same position of the Government south of the border, where a significant number—in their case about 15 per cent of credit unions—required short-term capital support?
My Lords, I broadly welcome the intention of this order, but I find myself wanting to ask the Minister why it has taken such a long time to bring it forward when it was self-evident that it was necessary and had been agreed by the previous Government and endorsed by the coalition parties when previously discussed. It seems lamentable that the Government have allowed the situation to go on for as long as it has without taking any necessary action.
When it comes to this particular order, we do not have sight of the evidence that we were assured would be available to us in informing our discussion and agreement. What harm would be done if the Government withdrew the order and brought it back after we have had an opportunity to consider the evidence that is so clearly necessary to inform our decision on this matter? It simply cannot be acceptable that the evidence has been published only this morning. As far as I am aware, no effort has been made to make it available to those who are likely to attend this session and discuss this matter. That is an inexcusable failure by the Minister and the Treasury, for which the Minister owes us a full and proper account. The right approach would be to withdraw this order until we have had adequate opportunity to discuss the evidence.
In the mean time, I support the question that the noble Lord, Lord Newby, asked. Can the Minister give us clarity, given that the Government have been so slow in bringing this matter forward, as to the position of people with accounts and business relationships with Northern Ireland credit unions that have experienced difficulty? Do the Government stand behind them until such time as the Financial Services Compensation Scheme becomes an eligible right of those with relationships with credit unions? Will the Minister also assure us that to the best of the knowledge of the Treasury and the FSA credit unions are not currently offering products in Northern Ireland to which they are not entitled by virtue of their authorities? The Minister at the end of his speech listed some of the products that credit unions would be able to offer once this order was implemented, but which they are not currently able to.
Finally—I ask this having dealt with these matters myself—can the Minister tell us whether any further action is intended with respect of the failure of the Presbyterian Mutual Society, and in particular the directors?
My Lords, notwithstanding the welcome rare appearance of the noble Lord, Lord Myners, as a former Treasury Minister in this Committee, it is a bit rich of the Opposition to talk about delay in this order. The Northern Ireland credit unions were left out of FSA regulation from the time that the Financial Services and Markets Act was enacted in 2000 until the previous Government left office 18 months ago. So for members of the Opposition to talk about the delay of this Government in not getting the order through earlier while on the other hand asking for evidence of a decision that they had taken before the election—seemingly without waiting for the evidence that they are now asking for—is indeed a bit rich. If noble Lords on the other side really want to persist with this line, this order will not get through, as it has to in the next few days and weeks, in order to give the people of Northern Ireland proper protection of their money in mutuals from the proposed transfer date to FSA regulation of March 2012.
What does the noble Lord, Lord Eatwell, who has come along with all kinds of clever procedural tricks this afternoon, have to say to the people of Northern Ireland if he is to deprive them yet further of proper protection under the Financial Services Compensation scheme? We need to get this order through if the people of Northern Ireland are to be protected from March of next year.
My Lords, to refer to the fact that the Government have apparently published only this morning the evidence of the consultation and the raising of the objection of not having had access to it as a clever procedural trick is an abuse of language.
The point we are making is that the Government should take seriously the consultation with the people of Northern Ireland and make the results of the consultation available to the Opposition so that they can properly scrutinise and assess the impacts of the change. That is all that I asked for. I also pointed out that on 13 October the Merits Committee wrote to the Treasury requesting that the material be published, and it was not published until this morning.
As my noble friends and I have made clear, we are entirely supportive of this legislation. We want to get it through as soon as possible, but we want proper due process. This is an abuse of due process. I think it would be best if we let the Minister proceed with his Motion, because he is not interested in actually debating the issues.
I would always defer to the advice and conclusion of my noble friend Lord Eatwell, but the petulant language used by the Minister is a sign of how rattled he is by this subject. I invite the Minister to clarify. He has said that if this order is not approved today it would deny the people of Northern Ireland certainty and protection in due course, with effect from the end of March next year. Can the Minister confirm that delaying the approval of this order for another week so that the necessary information can be reviewed by Parliament would mean that that certainty could not be delivered and that this is, therefore, the last chance for us to discuss it? In the absence of a clear answer I think that the should withdraw this order and re-present it to the Committee in a week or so.
My Lords, the situation is that we need to have the process complete, as I said, within the next days and weeks. There are a number of orders that need to be laid. In particular, four orders will need to be laid containing the transitional and consequential provisions, because those follow the negative procedure and they can only be made and laid after this affirmative order. So there must be a sequencing here, which we are starting today. All the information that has been requested will be available for the consequential technical provisions, which formed the main substance of the consultation. If we do not get on and lay today’s order, with the four that follow, in the time that is available, there is a very serious risk that transfer to FSA control will be delayed by approximately six months. It could be longer, as the FSA would need to restart the clock on its transfer process.
I am sorry if noble Lords do not like my language, but for those who are looking at this from Northern Ireland and who thought that the previous Government had made a clear decision, I quote from paragraph 1.1 of the March 2010 document, which says:
“Following the decision that credit unions in Northern Ireland should no longer be exempt from regulation under the Financial Services and Markets Act”.
We are today discussing the order which, if formally made, will enact that decision, made by the previous Government last year. The four enabling orders, for which the evidence must, of course, be considered, will be put through by the appropriate negative procedure. However, they cannot be laid until after this affirmative order has gone through. I hope that that explains matters.
In response to the question from my noble friend Lord Newby and the noble Lord, Lord Myners, I accept that there has been delay in this process, although not the 10-year delay of the previous Administration. There has been some delay because this is a matter not just for Her Majesty’s Treasury, but also for the Northern Ireland department. There have also been elections in Northern Ireland. I would have preferred things to have been tidied up a little earlier, but I really do not think that this should prevent us making the critical decision which Northern Ireland is waiting for.
On the responses to the decision in principle, it is, indeed, supported by the Northern Irish public. The published responses are positive. I apologise if the document arrived rather late, but nobody approached us and asked to see it until five minutes before we started. Responses were, on the whole, in favour of the transfer. The concerns expressed, such as they were, were over the nature of the transfer, which is precisely why an FSA consultation is taking place, relating to the four subsequent orders which will come forward and be considered in due course.
The other substantive issues which have been raised in this short debate are important. My noble friend Lord Newby asked about the difficulties in the Republic of Ireland, the consequences of their spreading north and so on. Clearly, the credit union sector in Northern Ireland has been affected by the financial crisis but not to the same extent as institutions in the Republic of Ireland. There remains a divide in the business operations from those institutions over the border as credit union membership is usually limited to a local geographical common bond. There is some crossover with the Republic in the membership of trade bodies and their respective depositor protection schemes, which is another reason that supports getting on with this. However, it is something that we need to get on with as fast as we can anyway.
In answer not only to that question but the related question of the noble Lord, Lord Myners, until we get this new arrangement in place, credit union deposits will remain the responsibility of the devolved Administration, as they have been since the settlement with Northern Ireland some 15 years ago. That could have been cleared up by the Financial Services and Markets Act 2000 but it was not. This reinforces why it is right to get on with this, since the whole Committee seems to agree on the principle.
The noble Lord, Lord Myners, also asked for an assurance that credit unions are not offering products that they are not entitled to offer. That remains the responsibility of the Northern Irish department until 31 March 2012 and I cannot speak for the department. After that date, credit unions will fall within FSA regulation in the normal way. The noble Lord also referred to the Presbyterian Mutual Society, which was a sorry saga. The present Government stepped in and helped with the clearing up of it. However, the Presbyterian Mutual Society is not a credit union under the terms of the order and is therefore not directly relevant to this afternoon’s discussion. However, it points out in a different way the importance of seeing that Northern Ireland gets a fair deal across the whole spectrum of financial services.
In summary, these measures are positive for credit unions and their current and future members. The transfer is important for the long-term security of and confidence in a very important financial services sector for Northern Ireland. While there are some upfront costs, they are relatively modest in relation to what we are putting in place. This is positive not only for consumers of financial services in Northern Ireland but should enable the credit unions themselves to develop their business in a positive way by offering further products.
I can only apologise to the Committee for the fact that we did not have the responses out earlier. I believed that they were not a matter of significance in relation to the basic decision, in principle, that was taken in March 2010. If we had received requests for them earlier, we would of course have seen what we could do to have a discussion and go through what was available. However, I was not aware until shortly before the start of this Committee that there were such concerns. I appreciate that the noble Lord, Lord Eatwell, tried to get hold of my office but was not able to get through this morning. I say again that the evidence relates in particular to the four negative orders which necessarily follow and could never be laid at the same time as this order. I hope that this Committee will give its support to something which all speakers have said they approve of in principle.
My Lords, it is an extraordinary protocol whereby the evidence will be given only if we ask for it, otherwise it will not be volunteered, which is what the Minister appears to be saying. However, I shall support the order on the basis of the assurances that the Minister has given that the evidence is strongly in support of it. I shall support the order also on the basis that the Minister has assured us that failure to approve it would therefore slow the four consequential negative orders and could lead to the FSA delaying by up to six months taking on the responsibilities contemplated by this order. If the Minister’s assurances on that point are not as clear as I interpret them, I would continue to be of the view that the right and proper process is for Parliament to have examined the evidence before reaching a decision. However, I believe that the Minister has given us a very clear indication that it is absolutely critical that the order be approved in the next few days or weeks—I hope that by “weeks” he does not mean several weeks, but a week or two at the maximum.