Financial Services Bill

Lord Stevenson of Balmacara Excerpts

Monday 15th October 2012 Lords Chamber

Moved by

[Lord Stevenson of Balmacara]

190ZZA: Clause 47, page 131, line 7, at end insert—
“( ) making provision for the increased diversity of the financial services sector and promotion of mutual societies, including arrangements to measure the number of members of mutual societies, and the market share for mutual societies as a proportion of the UK financial services sector.”

[Lord Stevenson of Balmacara]

My Lords, I shall speak also to Amendments 190ZZB, 190ZZC and 190ZCA. Mutual and building societies and the friendly society sector have played an important part in the organisation of savings and investments and the provision of credit in this country for centuries. Their existence, against all the odds on some occasions, has sometimes been a close-run thing and their constitutions and management structures are redolent of an earlier age of prudence and sobriety in financial matters. Many people regret that we do not do more to support this sector. There have been reports and initiatives aplenty in recent years, but not too much action. I am sure that all noble Lords will share our concern that the Bill should not disadvantage these important organisations.

Our amendments therefore have three purposes. The first is to invite the Minister to update us on the question raised in another place about the need to modernise the register of these bodies. As was indicated during the Committee stage debates, credit must be given to the FSA for bringing the registry out of the 19th century and into its present form, but 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. In comparison, a search at Companies House is a simple process which takes minutes, if not seconds. Mutual societies deserve a modern registry which 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 register established at Companies House, though, of course, we would be happy if the location of the registry could be unchanged. If the Minister could confirm that a modern registry can be established within the FCA, that would satisfy us.

Secondly, this part of the Bill empowers the Treasury to amend by order legislation on mutual societies for a number of different purposes. When this was raised in the other place the issue seemed to be whether the 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. Unfortunately, it is not clear from Hansard whether the Minister was able to clarify whether or not this was the case, so it might be useful if the Minister could outline how the clause affects the mutual sector and confirm that it is simply a technical matter with no new provisions.

Thirdly, Clause 47 introduces provisions for credit unions in Northern Ireland. Credit unions play a very important part in the organisation of savings and the provision of credit in the Province. As I am sure the Minister is aware, some attention was paid to this issue when the matter was debated in Committee in the other place. Subsection (2)(g) lists the Credits Unions (Northern Ireland) Order 1985 as legislation that the Treasury may amend by order. As was raised in the other place, the 1985 order is specifically included in the Northern Ireland Act 1998, established by the Good Friday agreement. Again, therefore, it would be helpful if the Minister could clarify the general position, particularly that subsection (4) is purely an enabling provision that will allow the transfer of functions on an agreed and acceptable basis and will not automatically dictate such.

I take this opportunity to invite the Minister to update us on the outcome of the consultation on the draft mutuals order, and particularly on whether it has now been agreed which matters will go to which body. The Minister will recall that the draft mutuals order talked about transfers to the FCA or the PRA as though the question of which regulator will actually step in at which moment had been left as a rather grey area. As was said when this issue was discussed in another place, surely that ambivalence suggests uncertainty as to what will happen in future, at a time when we should be encouraging the sector to have confidence and to grow. It also seems to run contrary to the commitment on page 9 of the coalition agreement, which states that the Government,

“will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry”.

Given that we are talking about transferring responsibilities between regulators, which regulator will be the champion for the mutuals model; who will actively encourage the benefits that can flow from a non-plc corporate form; and will either of the regulators have any responsibilities for such matters or none? I beg to move.

[Lord Sassoon]

My Lords, the draft mutuals order has been published this evening. My officials will send the noble Lord a link to it in the morning so he can be completely up to date. That cuts through that point: the draft order confirms that the Government are moving steadily ahead with lots of action, and I will briefly remind the Committee of some of it. The order is the next thing that is due to make progress in the Government’s important objective of promoting diversity. As we have discussed before, the important thing, as the noble Lord said, is that we want a level playing field. The Government do not see this Bill as the vehicle through which to promote particular sectors of the financial services industry—I think that the noble Lord understands that—but I will sketch out some of the other things that we are doing.

To reassure the Committee why in my view Amendment 190ZZA is not necessary, the Government have demonstrated a clear commitment to promote mutuality and to diversify and strengthen the mutual sector. We are taking action to give concrete effect to this commitment, including the new requirement in the Bill for the regulators to analyse the impact of proposed rules on mutuals and building societies, so helping with the local level playing field; the protection given to members of Northern Ireland’s credit unions; and legislation to reduce restrictions on the growth of credit unions. The Government are committed to ensuring that building societies continue to operate on a level playing field with banks while maintaining their unique identity—for example, in the draft Banking Reform Bill published last week, we proposed to exempt building societies entirely from the definition of a ring-fenced bank, although changes will be made to the Building Societies Act 1986 to bring it into line with the ring-fencing provisions of the draft Bill, which was the proposal supported by most respondents.

--- Later in debate ---

It is possible that in future new objectives might be given to the PRA by an order made under new Section 2D of FiSMA, which provides an express power to impose additional objectives, or by an order under new Section 22A of FiSMA specifying activities as PRA-regulated activities. As drafted, Clause 48 would not permit such new objectives to be applied to the PRA’s non-FiSMA mutuals functions. These four amendments will remedy that.

[Lord Stevenson of Balmacara]

I thank the Minister very much for his detailed explanation, particularly of the government amendments. I should like to make two points about level playing fields since that was the recurring theme. If there is a level playing field in terms of the generality of the mutual sector—I include in that the provident societies and friendly societies—there is still a problem which the Government have caused. An aspiration of the coalition agreement is that more support should be given to mutuals, yet we are saying that there must be a level playing field. I think that we would also accept that it is not the job of the regulator to pick and choose between them. I just leave on the table the thought that perhaps the Government might think again about how they proselytize for a sector in which they clearly believe. We all think that it does a good job, yet we are going to leave it to suffer the scourges of competition from whomever it is and from every quarter of the globe, which seems a little unfair. Perhaps that can be thought about again.

On upgrading the many years of records of friendly societies going back many centuries, many of them are probably on velum and therefore very difficult to transfer, which I understand. Again, it seems a little unfair that this cannot be given a little bit of priority. The Committee debates in the other place were redolent of support for this idea. Clearly, progress is being made, which we welcome. New listings and registrations will be online and therefore available. On those bases, I think that the level playing field is sufficient and we will just have to wait for that to come through. With that, I beg leave to withdraw the amendment.

Amendment 190ZZA withdrawn.