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Seanad Éireann debate -
Wednesday, 1 Nov 1978

Vol. 90 No. 1

Industrial and Provident Societies (Amendment) Bill, 1978: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

The purpose of this Bill is threefold: first it will preclude industrial and provident societies in the main from accepting deposits and will introduce a regime of controls for certain existing deposit-taking societies of a specified size to be operated by the Registrar of Friendly Societies; secondly it will provide the basis for a system for the inspection and supervision of credit unions; and thirdly it will make some fundamental and badly needed changes in industrial and provident law generally.

Industrial and provident societies are bodies corporate which may be formed for carrying on any industry, trade or business, including "the business of banking". The Principal Act is the Industrial and Provident Societies Act, 1893 and its section 19 lays down the conditions which must be met by societies which carry on "the business of banking". These conditions do not, however, involve regulatory control or supervision. In short, they are unacceptable in terms of modern banking controls.

When the Central Bank Act was enacted in 1971, industrial and provident societies were, as a general class, exempted from its scope for reasons that were perfectly valid at the time. Unfortunately, however, it has transpired since, that the exemption was exploited in a fashion which has given rise to a new type of financial institution, namely, the "banking" industrial and provident society. This type of society is easily recognisable by its almost exclusive concentration on the business of accepting deposits from the public.

Over 20 such societies have been registered since 1971. Some have gone out of existence, others have already been cancelled on various grounds by the Registrar of Friendly Societies. There are still, however, 14 societies on the register and, for as long as they continue to operate, these societies constitute a "fringe" banking sector which conducts its business in direct daily competition with the conventional banking sector. In contrast with the latter group, the societies concerned enjoy complete freedom from the extensive framework of controls which are applied to licensed banks by the Central Bank. This means that investors in them are bereft of the safeguards which characterise a licensed banking institution.

Part II of this Bill is, quite bluntly, aimed at this category of society. It has been formulated primarily to correct the serious anomaly that exists as regards the regulation of banking activity as between companies and societies. In addition, however, it will fill the "control vacuum" which existing deposit-taking societies have enjoyed in the years following the Central Bank Act, 1971.

Before discussing some details of Part II, I would like to explain to the House why the problem which these societies now pose cannot be resolved by a simple amendment to the Central Bank Act, 1971 to bring the societies within the ambit of that Act. The fact is that the societies concerned have operated for so long outside the control of the Central Bank that if they were brought immediately within the bank's domain, they could not live up to its technical licensing requirements. While the apparently satisfactory consequence would be that they would have to stop straight away taking in new deposits, the reality is that such a final development could lead to early difficulties, of a very serious nature, for some societies. And the bigger the society, the greater these difficulties could be.

This then is the background to the formulation of the elaborate provisions now contained in Part II. They were framed to avoid the danger of exacerbating, right away, an already difficult problem. Their effect will be to give some breathing space to the larger societies within which they can formulate a definite plan as to their future in the light of the firm prohibition now being placed on the future acceptance and holding by them of deposits.

Section 5 represents the starting point in so far as the cessation of deposit-taking by societies is concerned. It prevents the acceptance of deposits by any future societies and by existing ones which have not yet accepted deposits or have accepted some on a limited basis. It also imposes a definite time limit of five years on both the acceptance and holding deposits by the larger existing ones. Excluded from these provisions, of course, are those classes of society listed in section 4, namely, agricultural co-operatives, fishing co-operatives, credit unions and a small number of credit societies whose operations are largely analogous to credit unions. With the exception of the aforementioned categories, section 5 will apply to all other forms of society which are engaged in deposit-taking. In the preparation of the section, full cognisance was taken of the expert advice of the Central Bank itself.

The effect of section 5 will be to leave an existing deposit-taking society with three main options on enactment of the Bill.

(a) First, to gear itself towards applying for a banking licence from the Central Bank,

(b) Secondly, to arrange alternative sources of finance, for example, bank loans, to enable it to continue with its lending business, or

(c) Thirdly, to arrange for an orderly running down of its business.

To ensure, however, that the interests of investors are, as far as possible, borne in mind by any such society, whatever the option chosen by it, the registrar is being given sufficient powers in subsequent sections to monitor its affairs effectively and on a continuing basis.

By and large, the controls contained in sections 6 to 18 correspond with the powers already enjoyed by the registrar in the context of his supervision of the building society sector. Sections 6 and 15 are, however, exceptions in this regard.

Section 6 enables the registrar to regulate the raising of funds, apart from deposits, by societies to which Part II applies. It will assign to him the function of determining whether or not a proposed method of raising funds by a society is contrary to either the interests of members or of the public. Because the existing Industrial and Provident Societies code is silent in that no protection is provided for members of the public from approaches made to them by societies for funds, there would always be the possibility that existing deposit-taking societies could switch to a method of fund raising other than the acceptance of deposits. They could, for example, invite lump investments on promises of attractive interest or dividends. Rather than providing for an elaborate system of control to cover every conceivable form of fund raising, section 6 constitutes a flexible mechanism of control in this area which, we can be sure, will be administered by the registrar, particularly in so far as bona fide operations are concerned, according to the dictates of common sense and the common good.

Section 15 enables the registrar to appoint a person to the management committee of a society. Underlying this section too is a paramount concern for investors. For, if in the face of the prohibitions now being placed on deposit-taking by societies, a particular society were to decide on a future course of action which did not seem to serve the best interests of its investors, the facility to appoint a person to the committee of management of that society might serve to enable the registrar to intervene decisively on behalf of the collective body of investors. Such a person would, on one hand, be privy to the society's plans in full and, on the other hand, be in a position to steer the society back on a course most consistent with the cause of investors. In particular cases, this type of power for the registrar may prove to be a much more simple and effective device than if he were to invoke, instead, the formal and prolonged procedures of investigation or suspension. However, should any such society eventually prove recalcitrant, notwithstanding the presence of the registrar's appointee on the committee of management, the registrar could always employ the more direct powers available to him otherwise.

Part III of the Bill contains a scheme for the inspection and supervision of credit unions. It will be seen that the scheme compares very closely with many of the controls which have been included in Part II, but, in so far as the supervision and control of the operations of credit unions are concerned, I can say that the scheme has the entirely progressive objective of ensuring, as far as possible, that future growth in the movement is matched with stability.

Since the time of its infancy in the late sixties, the credit union movement has asserted itself as an important source of national savings. Recent figures alone indicate this. In 1969, the total amount due to shareholders and depositors by credit unions was just over £6½ million while the same figure in 1977 comes close to £60 million. Growth of these dimensions speaks loudly of the effort and hard work of those several people who form the backbone of the movement but it is true also that growth on such a scale unavoidably brings problems. As was mentioned in the Dáil when this Bill was presented there, the bigger the volume of money being handled by part-time people who, by and large, run the affairs of credit unions, the greater is the element of risk.

The purpose of Part III of the Bill is, therefore, to try to minimise any such risks. It vests the registrar with sufficient powers not only to monitor trends in the businesses of credit unions but to foresee any problem situations developing and to take any early corrective action that may be necessary. Already, the movement itself has gone on record as welcoming the initiatives contained in Part III.

Part IV is designed to introduce some few, but important, general amendments to existing industrial and provident society law. It does not, perhaps, amend enough of the many outdated provisions governing the activities of industrial and provident societies in the context of modern business conditions. A complete overhaul, however, of the relevant code would be a substantial exercise and would take some considerable time to complete. On the other hand, the prime purpose of this Bill is to protect, as quickly as possible, and so far as it is possible, the savings of ordinary people in a particular type of industrial and provident society. This urgent objective alone has justifiably led to the preparation specifically of this Bill but I would like to assure the House that, as soon as other priorities permit, a complete and full overhaul of the outdated industrial and provident societies code will be undertaken. The opportunity has, nevertheless, been taken to include in this Bill some basic amendments to general legal requirements affecting societies.

Of these, I would consider sections 29 and 30 to be the most important. They will update present accounting requirements for co-operatives to coincide with basic company requirements. The direct beneficiaries from this change will be the members of co-operatives themselves. They can now expect some acceptable level of disclosure and accountability. Agricultural co-operatives in particular are now major powers in the economy and the present turnover of the larger societies is in many instances greater than that of most of our larger manufacturing companies. It is, to say the least, anomalous that the requirements on these societies under current law in the matter of disclosure and accountability is much less demanding that what is required of even the most insignificant of limited companies. I accept, on the other hand, that the changes proposed are not as complete as they could be, nor, indeed as I would like them to have been.

There is undoubtedly a justifiable case for covering other important matters, such as consolidated accounts and the powers, duties and functions of auditors. The fact is, however, that the urgency attached to the pressing matter of protecting people's savings has meant that examination of these other complex and serious items has had to be deferred until the future consolidation exercise gets underway. The introduction of the new basic accounting requirements in sections 29 and 30 will, however, improve the current situation where the need for such improvement is most urgently required. My understanding is that, few as they are, the changes concerned have nevertheless been welcomed by the co-operative movement itself.

I recommend the Bill to the Seanad. The urgency and sensitivity of its prime objective was recognised in the Dáil during its passage through that House. I am confident that Senators too, will give the Bill their support so that the Registrar of Friendly Societies can, in consultation with the Central Bank, proceed without delay to monitor the affairs of the deposit-taking societies in the light of the new restrictions being imposed by this Bill on their operations.

This is an important Bill in so far as it affects some of the most interesting and progressive organisations of people in the entire country. The credit union movement is one which obviously deserves every encouragement it should receive and it is entitled to the critical attention of the Legislature to see if it can be assisted in any way by anything that the Legislature may do.

In relation to industrial and provident societies generally, or co-operatives, properly, as the Minister stated, they are among the largest organisations in the economic community. Perhaps we may soberly derive some encouragement, from the fact that they have progressed as fast as they have under the benign neglect of the Legislature which has forgotten to do anything that signified twopence about legislation governing their organisation for nearly 100 years. The fact that they have been ignored by the Legislature does not seem to have prevented them progressing as fast as they have done. They may be something from which we can derive something useful in relation to lots of matters.

In general, this Bill is welcome and certainly the Second Stage will not be opposed by this party. This is essentially a Bill to be dealt with on Committee Stage rather than Second Reading but I have one or two observations to make in the hope that the Minister may, in replying to this debate, deal with them. They are not very important but it is worth making them at this stage.

Part II is, in general, as I understand it, designed to introduce a control where I do not think anybody would argue there ought not to be a control and where its absence has not been good. I would like the Minister to tell me what bearing, if any, this first Council Directive Relative to the Co-ordination of Laws, Regulations and Administrative Provisions Relating to the Taking up and Pursuit of the Business of Credit Institutions has on this part of the Bill. The directive No. is 77/780 EEC. That directive does not apply to credit unions—that is Irish credit unions or UK credit unions—but it does apply otherwise in this area or it seems to. Are we in any way creating a situation with regard to Irish industrial and provident societies engaged in this type of banking activity which will not apply to credit institutions as contemplated by this directive who would be entitled by virtue of right of establishment to operate in this Community, or are the provisions of the directive themselves sufficient to ensure that we can have national laws of equal effect on the structures and behaviour of the bodies operating in this area as we are hoping to have in relation to industrial and provident societies engaging in banking activities here and which they will be subject to under Part II of this Bill when enacted? I should like the Minister to give the House guidance on the bearing if any that that directive has. I have just had a look at the directive and I thought it a pertinent question to put. I have not studied it sufficiently to form a view as to how the matter will link in to this proposed legislation. So much for the question of introducing a control where there is no control and where it is desirable that there should be control.

With regard to credit unions in general the principle ought to be that one should not impose restrictions unless there is justification for doing so. There should be some mischief discovered before one starts saying "Stop doing that". In general, bodies should be free until they show that because of the nature of the law there is an abuse of freedom operating. I know that other Senators may not share my view but I would have liked some indication of the problems which this legislation is meant to solve. I know that the Minister has told us that the credit union movement approves this legislation but is this really quite satisfactory? I do not know that it is the right way to legislate, that a body, even as splendid as the credit union movement operating with the Minister's advisers, should a piece of legislation and then tell us that everyone is happy. Before we enact such legislation we ought to know just what are the problems. We should know why we are saying that the Legislature must now give power to the Executive. We should know what is wrong with the situation that requires it to be done and what has happened that is damaging and which makes it necessary to do that so that we can see it does not happen again. Maybe nothing has happened in Ireland; maybe things have happened in other countries; maybe it is said that because of road accidents on Portuguese cliff roads we must do something about the road to Bray. Maybe it is something of that kind but I do not know and other Senators do not know about it. We ought to know the reason why because, after all, this point of principle arises in relation both to what we propose to do in Part II and also in relation to Part III. We are here proposing that the registrar—if I am reading it correctly—is going to be entitled to appoint somebody to the committee of management of the credit union just as he is entitled to appoint somebody to an industrial and provident society which falls within Part II, being engaged in banking operations. On Committee Stage I will be asking many questions about that and I know I will be told what is in the Building Societies Act but that is for that Stage. It is an important right to confer on any official, the right to appoint a person to a body which may be shared or joined together by the kind of bonds which are described in the Credit Union Act, 1966 to have a complete outsider coming in to sit on their affairs. I cannot see why it is necessary to take this power to put a stranger in; there should be at least some indication in general of what has happened which would not have happened if this power had been there and which would have been stopped earlier than it was.

In relation to Part IV, it is indeed an understatement of November 1978 when the Minister of State tells us that it does not, perhaps, amend enough of the many outdated provisions governing the activities of industrial and provident societies, and I doubt if it will be beaten by anything else said in the course of this month. That code is pretty well established, as everyone knows, with the odd, startling amendment made from time to time, generally in regard to the extension of the amounts involved.

One question which is quite important is in regard to what is proposed to be done. I am saying this very deliberately in the hope that Senators will for once listen to what I am saying. We are, in the sections dealing with the accounting provisions, doing something in relation to the type of organisations which are involved in the co-operative movement. We are not saying what is to be in their accounts. We are not giving any consideration whatever to what is proposed. We are going to hand over to the most worthy of officials the entire decision with regard to what are to be in the accounts of the industrial and provident societies. Admittedly we are providing him with the ability to distinguish between one class and another class of industrial and provident society and there are as many distinctions within that area as there are within the areas of limited companies, small, undistinguished private limited companies and the large very successful public company limited by liability.

In relation to the Companies Act the Houses of the Oireachtas have in the past given thought to every section relative to what ought to be in these accounts. I trust that before 31 December this year we will be considering a Bill which will contain equally full provisions with regard to companies to give effect to the fourth directive with regard to companies when we will be dealing, in very many cases, with organisations and bodies controlling very much smaller sums than the sums which are involved in the co-operative movement and where the type of accounts are going to be determined by the registrar under this code.

I know that we are in a transitional period with regard to what ought to be in these accounts but in a sense, with regard to that debate, we are nearly always in a transitional period because there are always debates going on in this area. I suppose the transition was caused by the inflation and the throwing up of the full question of historical accounting, but at the very least the provision ought to take the form of a ministerial order which could be debated in this House. I am not entirely happy that that is enough. I know that ministerial orders are subject to defects but technically if I understand what we do in this House, we can either pass it or annul it but we cannot amend it. This is something which might be looked at in Standing Orders, incidentally. Therefore, one might think we would not have a very fruitful debate if we have an order setting out the equivalent of the Sixth Schedule of the Companies Act, or the fourth directive, or whatever is thought appropriate for industrial and provident societies of one class or another. Admittedly perhaps we would not have a very fruitful debate if we could find something wrong with paragraph 17, page 24 and we could do nothing about it. Perhaps in such a case the Minister could go off and having listened to what was said would possibly make a change in it. I do not think it desirable unless we have what the Minister described as an outdated code updated pretty quickly. It should be updated to take into account provisions similar to those that are in the Companies Act of 1963 and as it will be amended by the fourth directive as it is legislated for in this community. If we had that in 18 months or so it would be all right to let things roll along for a while. But we are told to let it rest because the new sections have some dramatic changes and so forth. Like sections were introduced to the Building Societies Act in 1976. They are two years and more enacted and there is no order from the registrar under that code yet in existence unless something has happened since mid-day. Must we wait until 1980 for direction from the registrar in relation to industrial and provident societies? I am not getting excited about any particular matter but it is not a good enough method of dealing with this. Somebody should get down to the difficult business. I would like to make the important point that it might be a good thing, when we do get down to up-dating the industrial and provident societies, to think of the fact that the co-operative movement here is very different and has developed bodies entirely different from the type of thing that has happened in the UK. Any imitation of the Industrial and Provident Act, 1965, which is the most recent in Britain, is not the way to do that. Not merely should there be a ministerial and governmental mind about it but the public ought to have some sort of a report on what structural alterations are necessary. I would much prefer to operate on the 1893 code than amend the industrial and provident code with regard to the whole structure and rules of industrial and provident societies unless there has been full consideration, which I do not think there has been by any body, as to what is appropriate for the type of body which has grown up in Ireland in the last 30 to 50 years.

There are very interesting questions in regard to the relationship of modern management to Irish farmers. This is a quite different problem. Consideration has to be given as to what is the appropriate requirement here for the structure of the body. I would prefer to see that left on one side until there has been an examination made of it so that we could think about the report after that examination before we made any changes. I would see a quite different set of rules emerging as legal requirements. Perhaps in certain existing organisations a type of structure might be found which might be a guide to the Legislature as to what ought to be a requirement for all. I do not know whether that is a fact but one could well find it to be a fact. Very often companies are ahead of their brethren who do things they are not required to do and impose restrictions of one kind or another because they find that this is the best and wisest and most honest way of conducting their affairs.

The Minister's advisers are right if they are slow to rush in with amendments relative to the structure. It is very important to get that right when making these changes but that is no reason for not having the accounting changes made as quickly as they should be made and without having them subject to a debate in the Houses of Parliament and subject to a criticism by accountancy bodies and so on. On Commttee Stage I will have more to say.

I would like to say a few words of welcome for this Bill, particularly as a former Governor of the Central Bank. Part II of the Bill closes what could be a dangerous loophole. The exemption of industrial and provident societies from the Central Bank legislation of 1971 opened the door wide to the possibility of societies being set up as banks but without the restrictions and precautions applying to them which apply to banks licensed under the Central Bank Act. The Minister of State has said that since 1971 over 20 societies have been set up to carry on the business of taking deposits from the public of which 14 are still operating. These 14 differ from licensed banks in being under no obligation whatever to hold a certain minimum amount of capital and free reserves against their liabilities to depositors. They are under no requirement as to the ratio of liquid assets they should hold; they are under no restriction, as licensed banks are, as to the proportion of their funds that they may invest in any particular sector of the economy or lend to any individual. They are competing with the licensed banks and in order to attract deposits in competition with licensed banks they are constrained to offer quite high rates of interest, to advertise extensively and inevitably therefore to seek outlets for their funds which carry both a high rate of return and a concomitant high rate of risk.

We are, I suppose, fortunate that, during what the Minister has called the "control vacuum", there has been no collapse—whether this be attributable to good luck or good conduct or a mixture of both. The Minister for Industry, Commerce and Energy has several times warned the public against being induced to part with their money by promises of highly attractive interest rates. Now he has brought in this controlling legislation and I commend it as a very judicious blend of firmness and fairness. I am glad also that credit unions have been brought within the scope of some mild control.

It would be ungenerous of me not to pay a tribute here to the sense of public responsibility shown by financial journalists over recent years and particularly by the Financial Editor of the Irish Independent in continuing to bring this dangerous situation to public notice and to call for remedial legislation.

Finally, and I may not be thanked by my former colleagues in the Central Bank for saying this, I wonder whether, in relation to financial institutions, such as the industrial and provident societies with £15 million of deposits and some thousands of depositors, and in relation to building societies with vastly bigger sums of money, there is not need for a great deal of specialised skill and experience in monitoring their affairs. The reason I think this suggestion might not appeal to the Central Bank, who have already a lot on their hands, is that I am asking whether registrars as such are not being expected to undertake too heavy a responsibility in doing this kind of specialised monitoring of financial institutions and whether it should not be handed over to the Central Bank. Perhaps this matter could be dealt with by the Minister when replying.

As Senator FitzGerald has said, this is a most important Bill. I welcome it. Savings are most important to the economy of the country and we must have the wherewithal whereby people can save money. We must have the organisations there. The grave danger is that the type of person from whom one is trying to get the savings can be attracted by advertisements of high interest rates. They may not have advisers to advise on the correct place and on the dangers involved. A person seeing such advertisements assumes that as there is no action taken about the advertisements then they are probably sound and safe. That is why this legislation is so essential, so that the people who have money to invest will know that the institutions in which they are investing their money can be safe.

I appreciate also why the Minister has given the five years period over which to allow the industrial and provident societies that exist at present to put their affairs in order. I understand, although I did not read the Bill in detail, that he has given himself the power to extend that five years. I do not quite know what the position would be in the case of a society which kept on taking deposits and even after giving an extension kept on saving deposits. What arrangements are there to bring this to a stop without putting any of the savings of the people so involved at risk? Unlike Senator FitzGerald I agree that this is the time to bring in control on credit unions. Credit unions have an excellent record in what they have done. The Minister has told us that the figures have gone from £6½ million to £60 million. This is most important to the country. It would be a grave error to allow anything to go wrong in, say one section of this organisation that would discredit it in future. We must ensure that their record is blameless. I believe that now is the time to bring in control. We should not wait to see if something can happen or if something can go wrong.

Also it is the right time to bring in control of the accounts of co-operative societies. They must publish more information. In view of the fact that under the EEC very shortly even private limited companies will have to make greater disclosures, now is the time to deal with the co-operative societies.

I would like to say a few words on this matter. Credit unions are the result of very welcome initiative on the part of many voluntary workers who got down to the task well before 1960. They were for a long time trying to break into the business of taking deposits and lending to people at very reasonable rates plus the provision of mortality benefits and so on. They played a bigger role than that. They provided the very valuable service of relieving working class people of the problems they encountered through having to borrow money, through hire purchase schemes and so on.

I understand that the credit unions welcome the provisions in Part III of the Bill. They are the people who know best and naturally I would have to go along with that. I read the provisions myself. I believe in a certain amount of control in the sense that if the community are at risk then we are entitled to use certain controls. However, what I am always worried about is that when controls are imposed they might possibly be the result of pressure from other interested people who may see the credit unions going a little too fast and would like to see them going at a slower pace. I hope that is not the situation.

I feel that some sort of a board of experts rather than the Minister and the registrars should impose controls and keep the Minister informed and suggest appropriate moves when societies get into difficulties. In general I do not think we can quibble with the idea of controls. I am particularly interested in that part of the Bill and certainly I welcome it.

From the point of view of the development of the credit unions I trust that what I said earlier on will not be misunderstood. I did not mean to say that somebody would jockey it or manoeuvre it but one can with pressure from agricultural societies and industrialists, and possibly from some other private banking concerns, get into a situation where the advice coming in from them is putting undue worry on the credit unions and in fact may at some stage of their development inhibit them a little. I welcome Part III. I go along with the credit unions in accepting Part III because I take it that they know a little bit more about it than I do but I have some reservations about the question of giving powers to the registrars and the Minister.

The Bill deals with an exremely important and fundamental problem. It is to be welcomed as timely and appropriate. One of the essentials in banking finance generally is trust and confidence. If that trust and confidence which is felt by the public in ourbanking institutions is disrupted or undermined in any way, or even in any small area of that overall field, the damage that can be done can spread far beyond the institution itself and can damage the overall reputation of this country in the world of finance and banking.

The societies with which Part II of the Bill are concerned—the Minister of State referred to them as a type of fringe banking—generally speaking are engaged in an aspect of banking which is extremely skilled and extremely competitive and for its proper fulfilment in the interests of the depositors apart from the public it requires great control, either self-imposed or imposed, as in the case of the licensed banks, by the Central Bank.

The debate so far has highlighted a problem which everybody is aware of. The various advertisements which appear in the newspapers seeking deposits indicate that there is an urgency, within the societies to recoup the commitments they are already entering into. For example, very attractive interest rates which are offered never refer to a time factor, as to whether the deposits are repayable on demand or over a period of six or 12 months. On occasion I have noticed the same organisation, in the same newspapers, offering advances of substantial amounts but again no time is specified and the clear implication is that they are of a long term nature. It has been long accepted in banking that if one borrows short term and lends long term one has a recipe for disaster. The sections within Part II of the Bill are urgently needed because this type of disaster could not for long be avoided if this type of control was not brought into effect.

I have no doubt that the individual organisations are managed and controlled by people of great integrity but what we are concerned with here is that the very mechanics of the system cannot ensure safety, prudence and protection for the investing public. The speech of the Minister of State, and the comments so far, indicate that there is general acceptance of the Bill and I do not wish to delay the matter. In relation to credit unions, it has been pointed out that there is quite a similarity in some of the sections in Part III, as compared with Part II, but the effect in the application of the sections is quite different. The controls and the future monitoring as set out in section 2 are urgently needed. However, as far as Part III is concerned in relation to credit unions, the impact of these sections will be progressive and constructive. I have no doubt that they are welcomed by the credit union movement. Powers of inspection, as set out in section 21, of investigation and the power to appoint directors are understandable and acceptable. I believe that the existence of this type of control will more often than not ensure that these sections are less likely to be invoked than if the control was not available under the Bill. The role the movement has played in our communities is crucial and important, and the efforts and contributions made on a part-time voluntary basis by so many officials are a testament to the integrity of the people concerned. People with that integrity will be glad to see the sections set out in Part III.

In relation to Part IV, if I understand Senator FitzGerald correctly, it seems that we could have availed of this Bill to set out more precisely information which should be reported on in the annual accounts of the societies concerned. The point made by the Minister of State in her speech is important. There is a certain urgency here. The growth in some co-operative societies has been so accelerated that there is a very great anomaly now between what is required under the Companies Act, by any company regardless of how small, and some of the enormously economic entities. The Bill is correct in making provisions as set out in sections 29 and 30. Section 29 refers to the giving of a true and fair view in the accounts prepared.

That is set out in the Companies Act of 1963 and since that time accountants and auditors, by their own professional standards and developments, see a great deal more in those words than was intended in 1963. The fact that those words appear in section 29 should go a long way to meeting the qualified objection of Senator FitzGerald. It is true to say that we can rely on the general body of accountants and auditing profession to interpret those sections in a high professional manner. With that in mind it is correct to proceed now and not delay to allow for the other items which are, of course, very important and which the Minister of State referred to, the question of consolidated accounts and the precise duties and functions of auditors. It is correct to take the initiative now, to make progress on the essential areas and deal with the other matters when time permits I welcome this timely Bill.

I would be concerned about the position of the smaller type of provident society under this legislation. I refer to the small friendly society or public utility society which has enabled its members over the years to build and own their own homes or educate their children. The aim of this type of society is the advancement of a particular object of its members and not to make profit for the members. I seek the reassurance of the Minister that this very valuable and praiseworthy type of work should not be inhibited or put in jeopardy by anything contained in this legislation. I accept the existence of the other type of provident society whose object is to make profit for its members. It finds itself in funds and it can offer very attractive rates of interest. Its rates of interest compare favourably with the larger national provident societies whose investments are tied up in Government securities. It can operate on a competitive basis with the commercial banks.

We are familiar with that type of business. I wonder if it is an attractive proposition for the small investor and how many small businesses or how many people got married on the strength of their investment in Shanahan Stamp Auctions. More recently, there was the question of the Irish Trust Bank when the Government had to step in to the tune of almost £2 million to rescue investors. At that time reservations were expressed by many experienced people, and in this House, as to the statutory power of the Central Bank to mount this type of rescue operation. This legislation, if it controls this type of operation, is very welcome with the reservation I have expressed, that the legitimate work of the public utility societies should not be put in jeopardy.

I welcome this Bill but it surprises me that it took so long to bring such a Bill before the House. The Minister of State told us that 20 such societies have been registered since 1971 and that only 14 are in existence today. I should like to know how many people were hurt financially when these societies went out of existence. I am sure that is what brings about the end of any society when it gets into financial trouble. Last year we had the case of a certain bank going broke and the Minister for Finance guaranteed the people involved, before the election, that they would get a refund of their money. Many people would be in dire financial distress today if that had not been done. These societies have been described as being on the fringe and that is the best description but they are in competition with the licensed banks. That could create certain difficulties also because they are under pressure all the time to give higher rates of interest so as to encourage people to invest their money. I am glad that it is not the intention to wind up all these societies immediately. Some of them must be quite sound and are an advantage to the country. The Minister of State has assured us that there will not be undue haste in winding them up and to commence on the bigger ones where, if they stopped taking in deposits, there could be serious trouble for people who invested money.

I am pleased to see that the co-ops and the credit unions are being brought under the control of the Central Bank. The people involved in running the credit unions are marvellous. I have not heard of any case where there was any financial trouble or where finance went astray. One extraordinary thing is that the people who obtained loans from the credit unions have never complained. I suppose that it is mainly due to the fact that they are given the money out at a reasonable rate of interest. I am pleased also that the credit unions are also satisfied with this legislation. It was wise to discuss the matter with them before introducing the Bill. We must consider that from 1967 to 1977 the amount of money invested in the credit unions went from £7 million to £70 million. That £70 million should be protected; it belongs to the public. Legislation like this is needed to protect it and I support the Bill.

Like those who have spoken before me I too welcome the bill. As the Minister of State said, the primary purpose of it is to protect the ordinary investor. Those of us who want to see ordinary investors, the average person who saves a small amount of money, protected, must welcome this Bill. For too long many industrial and provident societies have been involved in what the Minister of State described as the "fringe banking business" and yet, have had no controls at all exercised over them. That is a state of affairs that cannot exist any longer and one I am delighted will end as a result of this Bill. I believe there are 14 such societies operating here and their primary business is involved in the acceptance of deposits from the public. It is time that these societies were brought under some control so that depositors can rest assured that their money is safe.

I would have preferred if it were possible for the provisions outlined in the Bill to be brought into line by amending the Central Bank Act, 1971. I realise that the Minister of State, and the Minister, said that this is not possible because it would create a rush on deposits and there would not be the finance there to meet them. As a general principle, all banking activities should be under the control of the Central Bank Act, 1971. I would instance some exceptions to this rule perhaps as the activities of building societies, of agricultural and co-operative societies and of credit unions.

I should like to refer to something Senator FitzGerald said. He realised that credit unions fulfil a very important function in our society, that the volume of savings they are dealing with is something in the region of £60 million and for this reason felt it was important that some control be exercised over deposits they accept. I am not one who goes along with the principle that a Government should merely react to events or bring in legislation when a disaster happens. I would prefer to see some control exercised before any such disaster. We had the instance of the Irish Trust Bank. I would prefer to see some control brought in first rather than react when it is too late and when somebody has lost a couple of million pounds. It is desirable that the credit unions be brought under control. I realise that the excellent work they do is carried on on a part-time basis. The volume is so great and the risks so vast that some control must be exercised. I welcome the Bill.

I have two observations to make. I would have preferred had there been a stronger push towards bringing these banking institutions under the specific control of the Central Bank by insisting that they obtain a banking licence. The Minister has given reasons as to why this is not advisable in the short term and in that event I hope the options she has set out as confronting these fringe banking institutions will operate to the benefit of the public. I believe that those who do not wish ever to have to take out a banking licence from the Central Bank and who would be reluctant to arrange alternative sources of finance will be loath to arrange for an orderly running down of their business affairs because largely they have been in it on a profit basis.

I am a little fearful that the registrar, on whom an awful lot has been placed, may not be in a position to monitor the operations under the second and third alternative, as specified by the Minister for public safety. That is a personal observation. I would have preferred a more urgent and stronger push towards bringing these fringe institutions under proper licence control by the Central Bank.

In the control switch it is laying out for the credit unions and these banking institutions—certainly in the case of the credit unions—the Bill indicates what can be done by volition. I believe that the controls imposed by this Bill on credit unions are introduced largely at the volition of the credit unions. Anybody who has been actively involved with the credit unions since their establishment back in the early sixties can only take a certain amount of pride in their wonderful achievement and the social part they played in the community.

They have been concerned by the massive growth in funds at their disposal over the past 15 or 16 years. This has created a certain amount of concern in the minds of the voluntary workers involved in the movement. They feel they should have some controls imposed upon them. The measures in this Bill I believe come largely from the credit unions. I compliment them on showing a wonderful display of public responsibility in that regard.

I should like to thank sincerely the Senators from both sides of the House who took part in the debate. I want to thank them for the warm welcome they gave it. We all realise the importance of having the Bill enacted as soon as possible and the importance of imposing certain controls on societies such as industrial and provident societies which are covered in the Bill.

Many points were raised by Senators and I shall try to deal with them. If a viewpoint has not been dealt with I will be glad to deal with it on Committee Stage. Senator FitzGerald spoke about the societies and the effect of an EEC directive on them. He wondered whether or not industrial provident deposit-taking societies would be covered by the EEC directive. They are covered if they are engaged in banking business. However, after the passing of the five years which is in the Bill those of them who would no longer be involved in the banking business would, of course, not be covered but those who are would be covered by the directive. Credit unions are not covered by the EEC directive nor indeed are non-banking cooperatives.

Senator FitzGerald raised the point, as did other Senators, as to why we should include credit unions in the Bill instead of, perhaps, amending the Credit Union Act. The Minister and I would prefer to amend the Credit Union Act but this is a rather involved process and it is in the long term. Credit unions are industrial and provident societies and it is appropriate that we fit them in here. Senator FitzGerald also made the point that credit unions should not be covered unless we had discovered some mischief on their part. The Bill simply gives the registrar power to control them and to inspect their affairs. If on inspection the registrar finds that there is something going on which should not be commended by anyone, he has power to investigate and do something about them. He would do that in the interests of the members.

The volume of money involved in credit unions is so great that it is dangerous to leave the handling of it to part-time people. Generally the movement is well run. Indeed, it is worthy of note to see that so many Senators paid high compliments to the movement. I should like to add my compliments to the movement also. While the movement is well run there have been some bad ailing cases which came to our notice. We felt that quick intervention could have saved the situation and, therefore, a person appointed to provide expert and on-going advice to credit unions would lead credit unions out of difficulties and could, in fact, save a bad situation. This is all aimed at giving credit unions the chance to right themselves. More than likely the person to be appointed to investigate the affairs will be a financial expert. The accounting procedures were mentioned and the provision that the registrar prescribe accounts is, of course, as Senator FitzGerald knows, taken from the Building Societies Act which was sponsored by the Senator's own party.

The Lord guide this House from such nonsense.

It does not bother me whether the Senator supports his own party or not; I was just reminding him of a fact.

The preparation of something like the Sixth Schedule of the Companies Act would take too long. Our primary concern in introducing this Bill has been to protect investors, to protect depositors. We have to move quickly on deposit-taking societies. A more detailed approach will, of course, have to be done in a consolidated exercise as I mentioned in my opening remarks. Senator FitzGerald mentioned that full extensive consideration would have to be given to up-dating the 1893 Act. This has been our point all along, but we cannot wait for this because of the seriousness, or the potential seriousness, of what might happen in the event of something going wrong in a deposit-taking society. We would be answerable if something went wrong, if one deposit-taking society failed and savings were lost by, perhaps, thousands of people. I do not think it would be a good excuse to say that we are taking a long hard look at up-dating the 1893 Act. It is important that we act now. Senator Harney said, to prevent a situation, to have the controls there to prevent it before a disaster occurs.

Senator Whitaker felt that too much of a burden might be placed on the registrar. The registrar's office, of course, will have to be—and I recognise the point he made—equipped with skilled personnel. I should like to tell the Senator that a full-time accountancy expert will be appointed as registrar. A strong consultative role has been written into the Bill for the Central Bank and, indeed, the bank has indicated its full willingness to actively assist the registrar in all of his investigations.

Senator Jago asked about the powers to regulate activities of existing societies. Section 10 will enable the registrar to regulate the activities of existing societies, bearing in mind, first of all, the public interest and, secondly, the interests of creditors. There are three options open to the existing societies: that they gear themselves towards applying for a licence to the Central Bank, that they arrange alternative sources of finance—for example, bank loans, to enable them to continue—or, thirdly, to arrange for the orderly running down of their businesses.

Senator Cassidy raised points about the friendly societies and the public utility societies. The friendly societies are not covered by the Bill. They are covered instead by the friendly society law, a different code of law. Section 6 will enable the registrar to deal with public utility societies favourably. I agree that this is desirable. They will not be caught by that section where funds raised are less than £20,000 per annum. Our information is that these societies raise less than £20,000 per annum. They do not accept deposits in the banking sense normally and, therefore, would not be covered by the controls.

Senator Markey raised two points. I should like to tell the Senator that if societies do not run down in an orderly fashion the registrar, under section 10, may make them do so by direction. Secondly, the Central Bank will be involved all the way with the registrar in a consultative role. That is highly desirable and is the way we would like things done. Finally, I should like to thank all the Senators who lent their support to the Bill.

Question put and agreed to.
Committee Stage ordered for Wednesday, 15 November 1978.