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Financial Services and Markets Act 2000 (Exemption) (Amendment No. 2) Order 2011

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. Motion Moved by