“the Department had access to all the relevant information and yet…”

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)

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  • Framer

    Why not seek the treatment depositors got in Icelandic banks:

    “In total, around £4.5 billion has been paid. It is estimated that this includes £2.35 billion compensation that the UK Government paid out to depositors on behalf of the Iceland Depositors’ and Investors’ Guarantee Fund (DIGF), £1.4 billion paid out by the FSCS for deposits above €20,887 and below £50,000, and £800 million paid out by the UK Government in respect of deposits above £50,000.” (Lord Myners in answer to Lord Laird question, 27 Jan 2010)

    The £800 million was entirely gratuitous, a decisoion made by Darling against Treasury advice.

  • Pigeon Toes

    Jeez imagine that a report that actually criticises a department. Is that why Arlene threw her dummy out?

    . “It’s very clear this report was all about apportioning blame.”

    (Just that it is not normally the department eh?)

    “It is the shoddiest piece of work I have seen coming out of Westminster for some considerable time”
    I find this highly amusing.

  • Alias

    Framer, folks always feign victin status when they want the taxpayer to bail them out of their bad investment decisions. The profit and loss in those societies is shared between the members, so it is the higher return than banking that draws them to take up share capital. You don’t see them demand that the profits are handed over to the taxpayer – only the losses.

    The report asks if the investors should have known that their money was not secure but what has the answer got to do with the taxpayer? They could have known, and they should have known if they valued the security of their money. The taxpayers must not be used as an unpaid underwriter for private investments.

  • Drumlins Rock

    Alias, the returns were not any higher than in a good bank account. Bearing in mind mr McFall is a former minister, and good pall of Gordons in persume, I think the paragraph 8. is as close as could go to stating the investors were savers not shareholder.

    “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)”

  • Cynic2

    But they weren’t deposits in a Building Society – it was a Mutual Society.

    The real issue is it had transformed into an illegal bank which did not have a licence. So who was watching that and why didn’t they do something? where the hell were the Auditors?

  • Alias

    DR, I understand that you have a beneficial interest via family member so I’m not going to insensitively labour my original point, i.e. that the taxpayer should not be used as a retrospective underwriter for private investments that return a loss to the risk taker.

    Folks have to assume responsibility for the consequences of their own actions. This Nannystate pandering to those who lose money in commercial ventures is very dangerous in that it encourage reckless behaviour by investors, creating the moral hazard. There is a subtext in the report that the state owed a duty of care to these private investors and that it failed in that duty. That subtext seems also to serve as a politically expedient pretext to compensate them. How hard can it be for folks to google “industrial and provident society” to find out more about what they are investing in? These investors owe a duty of care to themselves, and they should be forced to exercise it or face the consequences of their own reckless behaviour.

    So I agree that folks do need to be better educated here, but don’t agree that the state needs to provide the education – or compensate for loss suffered through ignorance. Folks don’t understand, for example, that they are not depositing their money with a bank for safekeeping but that they are actually surrendering legal title to their money to the bank and becoming a creditor of it under its double entry bookkeeping system. If they have that level of ignorance about banks, I’m not surprised if they don’t grasp the legalities of becoming shareholders in an IPS.

  • [quote][i]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)

    [b]We note DETINI’s opinion that it was not their legal responsibility to regulate the PMS or manoeuvre them into regulation.[/b][/i][/quote]

    So it appears that anyone can start a rogue bank/laundry, and quite legally too? Indeed, what are all banks if not criminal money laundering operations with some of them even kept afloat by States fleecing taxpayers and brainwashing them to believe that they are responsible for repaying debt/credit spirited away to other accounts supporting free lavish lifestyles …… like good little ignorant slaves do for their arrogant masters and their bankers?

    And they haven’t gone away, you know, for they are all still there moving figures around amongst themselves, as if it were real wealth.