As indicated by their questioning of the relevant minister at Stormont, the UK Treasury Committee’s report on the illegally operating Presbyterian Mutual Society [PMS] is highly critical of the NI Department of Enterprise, Trade and Industry. Not that it’s likely to be of much comfort to the shareholders. The Guardian picks up on the relevant criticism in the report
John McFall, the committee’s chairman, said a regulatory gap in Northern Ireland left mutuals exposed to the credit crunch. Regulators told the committee they were powerless to act when the Belfast-based mutual found itself in trouble. However, McFall said it was unacceptable for Northern Ireland ministers to adopt this stance, when they were closest to the situation. “The committee were surprised and concerned that the department had access to all the relevant information, and yet this did not result in any preventative action or further examination being undertaken. This might well have entailed action in London as well as in Belfast, but as the department closest to the problem, it is reasonable to expect Detini to have taken a lead in identifying the problem, and in seeking a solution,” the report said.
Whilst the BBC report has this response from NI DETI Minister, Arlene Foster
Enterprise Trade and Investment Minister Arlene Foster said the report was “very short on facts and details”. “All they say is that a remedy must be found, this report does not point to any solutions,” she said. “It’s very clear this report was all about apportioning blame. “It is the shoddiest piece of work I have seen coming out of Westminster for some considerable time.”
And from the report’s Conclusions and Recommendations
Roles and responsibilities
1. The assets of the PMS were badly affected by the general financial crisis and by its non-residential lending strategy. The Administrator has submitted a confidential report on the Board’s conduct to DETINI, which now has to decide whether to start disqualification proceedings. It is early to judge the degree to which the directors were culpable rather than unlucky, but nothing we say later in this Report should detract from the fact that it is the duty of directors to ensure their companies are properly run. (Paragraph 24)
2. The Government guarantee of bank deposits may have alerted members of the Presbyterian Mutual Society to the risks they faced, but it did not create those risks. Moreover, although it is theoretically possible that the Society might have survived the run and continued to prosper, it is more likely that the gap between its assets and its liabilities would have emerged in due course. Members would have been exposed to even greater losses. (Paragraph 25)
3. Companies which are carrying out activities which should be regulated by the FSA have the primary responsibility for identifying that fact, and seeking the necessary authorisation. (Paragraph 34)
4. We understand that the Registrar had no regulatory functions in relation to industrial and provident societies, and could take no action. But we do not believe that the Department of Enterprise, Trade and Investment NI was so circumscribed. We note DETINI’s opinion that it was not their legal responsibility to regulate the PMS or manoeuvre them into regulation. We are dismayed, however, that the Department had access to all the relevant information and yet this did not result in any preventative action or further examination being undertaken. We are surprised that DETINI did not consider whether the regulatory gap needed to be filled. This might well have entailed action in London as well as in Belfast, but as the department closest to the problem, DETINI should have taken a lead in identifying the problem, and in seeking a solution. (Paragraph 38)
5. The growth of the Society should have been accompanied by a review of its governance. (Paragraph 39)
6. The congregations of Presbyterian Church in Ireland have suffered as a result of the PMS collapse, both as individuals, and collectively. Legally, it appears that the Church has no liability. However, the Society was linked to the Church, its role was advertised at the General Assembly, it was the subject of pulpit calls and it enthusiastically endorsed by many of its ministers. We consider that the Church cannot evade responsibility for what happened, and should consider whether it can help in any way. (Paragraph 42)
Should members of the Society have known?
7. If the Chairman of the Northern Island Assembly Committee on Enterprise, Trade and Investment believed the PMS was regulated, it is no surprise that ordinary people made the same assumption. (Paragraph 46)
8. We note that PMS shares were withdrawable on demand, and fixed in value: it is understandable that PMS members considered them as analogous to deposits in a building society. (Paragraph 47)