Session 2008/2009 First Report COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT Report on the Committee's Inquiry into the Role and Potential of Credit Unions in Northern Ireland TOGETHER WITH THE MINUTES OF PROCEEDINGS OF THE COMMITTEE RELATING TO THE REPORT, WRITTEN SUBMISSIONS, MEMORANDA AND THE MINUTES OF EVIDENCE Ordered by The Committee for Enterprise, Trade and Investment to be printed 5 February 2008 Report: 05/08/09R (Committee for Enterprise, Trade and Investment) This document is available in a range of alternative formats. For more information please contact the Northern Ireland Assembly, Printed Paper Office, Parliament Buildings, Stormont, Belfast, BT4 3XX Tel: 028 9052 1078 Membership and Powers Powers The Committee for Enterprise, Trade & Investment is a Statutory Committee established in accordance with paragraphs 8 and 9 of the Belfast Agreement, Section 29 of the Northern Ireland Act 1998 and under Assembly Standing Order 46. The Committee has a scrutiny, policy development and consultation role with respect to the Department for Enterprise, Trade & Investment and has a role in the initiation of legislation. The Committee has power to: . Consider and advise on Departmental Budgets and Annual Plans in the context of the overall budget allocation; . Approve relevant secondary legislation and take the Committee stage of relevant primary legislation; . Call for persons and papers; . Initiate inquiries and make reports; and . Consider and advise on matters brought to the Committee by the Minister for Enterprise, Trade & Investment. Membership The Committee has 11 members, including a Chairperson and Deputy Chairperson, and a quorum of five members. The membership of the Committee is as follows: . Mr Mark Durkan (Chairperson) . Ms Jennifer McCann (Deputy Chairperson)* . Mr Paul Butler** . Mr Leslie Cree . Mr Simon Hamilton . Dr Alasdair McDonnell . Mr Alan McFarland . Mr Gerry McHugh . Mr Sean Neeson . Mr Robin Newton . Mr Jim Wells*** * With effect from 20 May Ms Jennifer McCann replaced Paul Maskey as deputy chairperson. ** With effect from 20 May Mr Paul Butler replaced Mr Paul Maskey. *** With effect from 15 September 2008 Mr Jim Wells replaced Mr David Simpson. Table of Contents Report Executive Summary Summary of Recommendations Introduction Key Issues and Findings Options for Change Conclusions Appendix 1 Minutes of Proceedings Appendix 2 Minutes of Evidence Appendix 3 List of written submissions to the Committee Appendix 4 Written submissions to the Committee Appendix 5 List of witnesses who gave evidence to the Committee Appendix 6 List of research papers Appendix 7 Research papers Appendix 8 List of other evidence considered by the Committee Appendix 9 Other evidence considered by the Committee Appendix 10 List of abbreviations Executive Summary Purpose of the Inquiry 1. The regulatory arrangements in Great Britain (GB) and in the Republic of Ireland (RoI) allow credit unions in those jurisdictions to provide a much wider range of services to their members than credit unions in Northern Ireland are permitted to offer. The Inquiry was set up to examine the role of credit unions within the communities they serve, to identify the barriers that are preventing credit unions here from offering a wider range of services and to consider how the potential can be unlocked to permit credit unions to expand their range of services and to support them in so doing. The Credit Union Movement in Northern Ireland 2. The credit union movement in Northern Ireland dates back to the 1960s. There are currently 181 credit unions here serving over 400,000 members. There are two main representative bodies which look after the interests of credit unions. These are the Irish League of Credit Unions and the Ulster Federation of Credit Unions. 3. Credit unions here provide core savings and loan services within limits prescribed by the Department for Enterprise, Trade & Investment (DETI) Companies Registry and which are subject to re-evaluation and change from time to time. Limits include size of individual share holding; size of deposits for those under 16 years of age; dividends payable; amount of loan advances; and percentage of loan interest chargeable. 4. Following concerns raised by the two representative bodies, the Enterprise Trade & Investment Committee (the Committee) commissioned further research into the issue and subsequently decided to undertake this Inquiry. Expansion of the Range of Credit Union Services 5. In addition to being able to offer the services that can be offered by credit unions in Northern Ireland, credit unions in GB can offer a much wider range of services including current accounts, internet and telephone banking, electronic transfer of wages, Automated Teller Machines (ATMs), insurance, discount services, debit cards, mortgage, bill payment, direct debit, standing orders and junior savings accounts. There is strong support from the credit union movement for the proposal that credit unions in Northern Ireland should be allowed to expand their range of services to cover at least those services which credit unions in GB are able to offer. This viewpoint is strongly supported by the Committee. The Committee believes that, as a first step, credit unions here should be permitted to expand their range of services to include, at the very least, those services which credit unions in GB can currently offer (Recommendation 1). 6. In addition to being able to offer the services available to credit union members in GB, the credit union movement in Northern Ireland strongly advocates the opening up of membership to include joint accounts and group membership of credit unions. There is also strong support for credit unions that would like to reinvest assets into community development and community enterprises. Credit Union Registration and Regulation 7. Many of the barriers to the expansion of credit union services here result from the way in which credit unions are regulated. Credit Unions in Northern Ireland are registered with and regulated by DETI Companies Registry under the Credit Unions (Northern Ireland) Order 1985. Credit Unions in GB are registered with and regulated by the Financial Services Authority (FSA) and, since July 2002 have come under the Financial Services and Markets Act 2000 (FSMA). As such, credit unions in GB can offer a wider range of services. Credit Unions in Northern Ireland are prohibited from offering services which come under the scope of the FSA to regulate. It is important to note that registration is seperate from regulation. Credit unions are required to register so that members can be assured that their credit union is governed by the provisions of the appropiate credit union legislation. Regulation relates more to the process of ensuring that credit unions are being managed robustly, including the fair treatment of members, within legislative requirements and the regulators guidelines. 8. The Committee considered a number of options in order to address this disparity. Not least of these was the option of the FSA delegating responsibility for the regulation of credit unions to DETI Companies Registry. The Committee found a lot of support for this option across the credit union movement including from both representative bodies and also from the British Bankers Association (BBA). However, the key stakeholder in the delegation process, the FSA, was wholly opposed to the delegation of its responsibilities. For this reason, the Committee felt that it was not in a position to recommend the option as it had little likelihood of success. 9. The Committees recommended option is for the registration of all credit unions in Northern Ireland to remain within DETI Companies Registry and for regulation of all credit unions in Northern Ireland to move from DETI Companies Registry to the FSA in order to deliver the services outlined above (Recommendation 2). The Committee endorses this option as a key element in a 'package of measures which together are designed to support the credit union movement in Northern Ireland to embrace change, to expand their services and to operate under the new regime. This package of support is outlined in the next section. 10. In making this recommendation, the Committee acknowledges that many individual credit unions are content with current regulatory arrangements and have no desire to expand the range of services they offer. The Committee is reassured in this regard, by evidence from the Association of British Credit Unions Ltd (ABCUL) coupled with assurances from the FSA, that the 'lighter touch Version 1 FSA regulation provided to credit unions that wish to provide only core services will meet the needs of these credit unions, whilst allowing others to expand under the FSAs Version 2 regulation. 11. The Committee sees the establishment of an FSA presence on the ground in Northern Ireland as key to the success of regulatory changes and expansion of credit unions services (Recommendation 3). Credit unions have an excellent working relationship with DETI Companies Registry which cannot possibly be mirrored by an organisation operating from London or Edinburgh. In order to successfully bring about the changes proposed, credit unions will need hands-on support from the FSA on a regular basis and the FSA will need time and hands-on involvement to get to know the credit union movement in Northern Ireland. 12. The continuing involvement of DETI Companies Registry would be helpful in assisting with the changeover process. DETI staff have a good working relationship with and a high level of understanding of the credit union movement. Package of Support to Bring About Change 13. Changing from the current regulatory regime to the FSA regime will require credit union management and staff to train in the operation of the new procedures and in the provision of additional services where they decide to provide such services. For this training to be successful it will require close co-operation between the credit union movement and the FSA, supported by DETI, in the development and delivery of training programmes (Recommendation 4).