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Presbyterian Mutual Society

It has always been a pleasure to serve under your chairmanship, Sir Nicholas, and it is a particular honour to be present for your valedictory performance as Chair of our proceedings. I congratulate the hon. Member for South Antrim (Dr. McCrea) on securing this important debate and I am very grateful for the contributions made by right hon. and hon. Members on both sides of the Chamber. It is clear that we all share a deep concern about the very difficult circumstances in which many members of the Presbyterian mutual society still find themselves. I reiterate that the Government remain greatly sympathetic about the serious financial difficulties faced by many PMS members. Personally, I want to do all that I can in my remaining time in the House of Commons to ensure that we bring matters to an acceptable conclusion. As many hon. Members have said, it is right that we should not get into the blame game; instead, we should focus on solutions. However, it is worth taking a few moments to remind hon. Members of the factual background to the situation of the PMS, as it sheds light on some of the difficulties encountered by both the Northern Ireland Executive and ourselves in charting a way forward, and it explains some of the delay and frustration that many people who have put money into the PMS have experienced. Again, I assure PMS members that we are doing all we can to work with the Northern Ireland Executive to come up with an agreed way forward. The PMS is an industrial and provident society, set up in 1982 to operate for the benefit of its members and the Presbyterian Church in Ireland, and registered under the Industrial and Provident Societies (Northern Ireland) Act 1969. The legislative framework for Northern Ireland industrial and provident societies is a devolved matter, falling to the Department of Enterprise, Trade and Investment of the Northern Ireland Executive. The PMS is therefore registered with DETI, although DETI's role does not include or require any regulatory oversight. The PMS, like other industrial and provident societies in Northern Ireland, is not a deposit-taking institution. IPSs are not normally regulated by the Financial Services Authority or covered by the Financial Services Compensation Scheme. The legal situation is that investments in the PMS were in the form of withdrawable share capital—that is, those investments of up to £20,000, which I recognise are a particular concern of the hon. Member for South Antrim—and interest-bearing loans to the society. That relates to those investments of more than £20,000. The legislation imposes a £20,000 limit on the withdrawable share capital that an IPS may issue to any member, and an IPS with withdrawable share capital may not carry on banking business. The PMS holds the same status as other IPSs in Northern Ireland and the majority of IPSs in Great Britain—they are not authorised to conduct financial services business. IPSs in Great Britain and Northern Ireland are required to apply to the Financial Services Authority for authorisation should they wish to carry out regulated activity. IPSs issuing withdrawable share capital up to the £20,000 statutory limit are exempt from the authorisation requirement for deposit-taking under the Financial Services and Markets Act 2000. IPSs that engage in mortgage lending, as the PMS did, require FSA authorisation. As hon. Members will be aware, an FSA investigation into how the society was run concluded that the PMS""was conducting regulated activities without the necessary authorisation or exemption."" Reports by the administrator of the PMS to DETI make it clear that the manner in which the society was run, and the actions of certain directors, were highly questionable. FSA guidelines are very clear—that it is for a society to establish whether its activities are such that the law requires it to be regulated, and for a society to notify the FSA if it does need to be regulated. Responsibility clearly lay with the PMS to seek the appropriate authorisation. The circumstances of PMS members are different from those of depositors in other collapsed financial institutions in at least two respects. First, it is important to remember that the PMS was acting illegally. Secondly, financial institutions supported by the Government, such as the Dunfermline building society, were appropriately regulated and authorised by the FSA and paid a levy to the Financial Services Compensation Scheme. Government support to depositors in institutions such as Dunfermline and Icesave was clearly about banks and other deposit-taking institutions that were regulated by the FSA or European economic area equivalents and which contributed to the Financial Services Compensation Scheme or European national deposit guarantee schemes. Several hon. Members suggested that Government action to support banks and building societies that got into difficulties created the problems with the run on the PMS, but I do not find that argument compelling. Other IPSs in Northern Ireland and elsewhere in the United Kingdom did not find particular difficulties; rather, the PMS's business model and members' ensuing lack of confidence in it led to the collapse. That is not to say, however, that this is not a serious situation, and we need to do something about it. As the recent Treasury Committee report observed, PMS members should have been informed that the society was unregulated, that they were ineligible to access the Financial Services Compensation Scheme and that risks were associated with investments in commercial property. Many PMS members feel that they were savers, rather than investors, and that issue has been explored in the debate. I repeat that I want to see an acceptable solution achieved during this Parliament, and I will do what I can to bring that about. As has been mentioned, the Prime Minister set up the PMS ministerial working group, which demonstrates the Government's commitment to addressing the issue and to working with the Northern Ireland Executive to identify what might be done to assist investors in the PMS. I do not need to go into the working group's terms of reference in detail, but I do want to address some of the issues that have been raised. First, I recognise that it has taken longer than expected for the group to produce a report on a solution to give to the Prime Minister, but the matter has proved particularly complex. Notwithstanding the best endeavours of the Northern Ireland Executive and Treasury officials, efforts to find a solution have taken some time to come to fruition, and I will say more about that in a moment.