Clause 47 - Mutual societies: power to transfer functions

Financial Services Bill – in a Public Bill Committee at 3:45 pm on 15th March 2012.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 3:45 pm, 15th March 2012

I beg to move amendment 162, in clause 47, page 130, line 36, at end insert—

‘(f) providing for any function of the FSA in respect of the Registry of friendly societies to be transferred to a registrar established at the Registrar of Companies.’.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

With this it will be convenient to discuss the following: amendment 163, in clause 47, page 131, line 1, leave out

‘both the FCA and PRA’ and insert

‘the Registry of friendly societies established at the Registrar of Companies or to any of the FCA and PRA and the registry of friendly societies at the Registrar of Companies’.

Amendment 164, in clause 48, page 132, line 4, leave out

‘to the FCA and the PRA’ and insert

‘the Registrar of Companies or to the FCA, the PRA and the Registrar of Companies’.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Clause 47 relates to mutual societies, and I know that some of my hon. Friends are concerned about the treatment of the non-plc sector when it comes to financial regulation. Mutual and building societies, and the friendly society sector in particular, sometimes find that the regulators do not treat their business model in a way that reflects their particular concerns. It is therefore important that we take some time to look at the provisions that relate to mutual societies.

The amendments would help to put the corporate form of mutual societies on a somewhat closer footing to those of other businesses. The amendments particularly relate to the registrar of mutual societies, which is properly known as the registry of friendly societies. That function has been exercised by the Financial Services Authority for a number of years, and credit must be given to the FSA for bringing the registry out of the 19th century and into its present form. Unlike Companies House, where all filings can be done online, at the registry of friendly societies—located at the FSA—it still takes 48 hours to get a search of certain records of a mutual society, whereas a search at Companies House is a simple five-minute process.

The point of the amendments is simple. Mutual societies deserve a modern registry and one that can support and promote the mutual society model. The amendments would provide for any function of the FSA in respect of the registry of friendly societies to be transferred to a registrar established at the registry of companies. The fees payable by mutuals are insufficient to cover the costs of a registry, but they are more expensive than the registry of companies, and the community interest companies regulator plays that role in respect of mutuals and is co-located within the registry of companies. That is the model that we are suggesting in the amendments.

I hope that the Minister will understand why we are suggesting that the arrangements need to be modernised. Friendly societies and mutuals should have access to basic registry capabilities in a similar way to companies.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The problem with the amendments is that the registry of friendly societies does not actually exist, so there is nothing to transfer. However, I think the hon. Gentleman’s point is about the registration of financial mutuals, of which friendly societies are a subset. I have taken onboard the hon. Gentleman’s point about the modernisation of registration, and I think that his point is not about it moving to Companies House, but rather that some of the technology that Companies House uses to enable searches and so on should be adopted by the FSA. That point was well made and I will raise it with the FSA.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

That is helpful. I do not necessarily want to prescribe where such functions sit; it is about ensuring that mutuals have access to modern arrangements. After having raised the issue with the FSA, I would be grateful if the Minister will drop us a short note to let us know its reaction, and I am sure that he will do so.

Mr Hoban indicated assent.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The Minister has indicated that he will, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

We are talking about the Treasury’s ability to amend, by order, legislation on mutual societies for a number of different purposes. I have a few questions. I assume that FCA and PRA responsibilities for the  functions that we are discussing are broadly the same as those for the plc sector, and that there are no anomalies for the mutual sector, as opposed to the non-mutual sector. Will the Minister clarify whether there will be a simple transfer of functions from the FSA to the FCA or PRA, or whether we need to be aware of other provisions buried in the clause? It would be useful if he could outline how the clause might affect the mutual sector. It would be useful to hear whether the clause is simply technical. I often find that there are new provisions in such arrangements, so it would be useful if the Minister could point them out.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

The Minister will probably pre-empt me, but clause 47 introduces provisions for credit unions in Northern Ireland. Subsection (2)(g) lists the Credit Unions (Northern Ireland) Order 1985 as legislation that the Treasury may amend by order. The 1985 order is, of course, specifically included in the Northern Ireland Act 1998 established by the Good Friday agreement as part of the remit of devolution. Will the Minister clarify that the clause is not wholly amending or writing across the 1998 Act’s inclusion of aspects of the 1985 order within the window of devolution?

My query particularly relates to subsection (4), which provides for

“any function of a Northern Ireland department or the Registrar of Credit Unions for Northern Ireland to be transferred to the FCA or the PRA, or to both”.

Subsection (4) also provides for

“any function of a Northern Ireland department or the Registrar of Credit Unions…which relates to the determination of disputes to be exercisable instead by a court.”

I seek the Minister’s assurance that that is purely an enabling provision that will allow the transfer of functions on an agreed and acceptable basis, and will not automatically dictate such a transfer.

The Minister should be aware that when the Northern Ireland Assembly considered how to enable credit unions in Northern Ireland to offer a wider range of services, the Assembly recognised that the best way to do so was for those credit unions to be regulated by the FSA. That was the clear preference of the relevant Assembly committee, which I chaired. The committee’s report, which was adopted unanimously across the Assembly, stated that, even with the regulatory function’s transfer to the FSA, the registration function would remain as devolved function, albeit one that people regarded as nominal or token. The credit union movement—both the Ulster Federation of Credit Unions and the Irish League of Credit Unions—insisted on a residual window of interest and engagement between the credit union movement in Northern Ireland and the devolved authority.

Given that the registration function and the regulation function do not have to be conducted on an ad idem basis, and given that there is a differential, will the Minister assure us that, if the case for observing that differential can still be made, it will not be automatically  prejudiced by this clause standing part of the Bill? There is some concern there.

The credit union movement went along with the recommendations that came through the Assembly and the relevant Assembly committee on the understanding that there would still be that window of contact and responsibility at a devolved level. I understand that the Department in Northern Ireland has come to a different view on whether it wants to continue the registration function. That may be the Department’s view, but as I understand it from talking to members of the Assembly committee, it has not revised its previous view or the unanimous recorded view of the Assembly. It still wants to allow an appropriate registration function to remain with a Northern Ireland Department. Will the Minister assure us that the clause is just enabling changes to be made that are agreed and necessary, without imposing any changes that are not yet agreed?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

With the exception of subsection (4) of the clause, I can assure the hon. Member for Nottingham East that all it does is apply to mutuals the provisions that would apply to companies. It is a relatively straightforward approach.

On the issue raised by the hon. Member for Foyle, there are a number of matters in the Bill that relate to Northern Ireland, and this is the most obvious one. We would, of course, not bring in these provisions until we had secured the consent of the Northern Ireland Assembly. It is difficult to separate registration from regulation and it is a challenge, but we are able to move only with the consent of the Assembly.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

When the inquiry was conducted— I chaired it in the Northern Ireland Assembly—the Northern Ireland Department that housed the registration and regulation function was comfortable with the differentiation. The evidence from the Treasury suggested that it was comfortable with the differentiation and believed that that was a constructive way of accommodating the different interests. The FSA agreed with that. If they all agreed, and their agreement was one of the things that informed the report to the Assembly, people are at a loss to understand why it has been suggested that it is impossible to separate the two functions.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

No one said it was impossible. If those parties wished to proceed, as I have said and as the explanatory notes make clear, they could do so with the consent of the Assembly.

Question put and agreed to.

Clause 47 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Greg Hands.)

Adjourned till Tuesday 20 March at Four o’clock.