Vol. 231 No. 13
I welcome the Minister of State, Deputy Sherlock, to the House to discuss the Bill.
Before we commence, I remind Members that a Senator may speak only once on Report Stage, except the proposer of an amendment, who may reply to the discussion on that amendment. Each amendment on Report Stage must be seconded.
Amendment No. 1 is in the name of Senators Barrett, Crown and Quinn and arose out of Committee proceedings.
I move amendment No. 1:
In page 6, between lines 16 and 17, to insert the following:
“(3) Notwithstanding this section a person who wishes to carry on a regulated business can apply to the Central Bank of Ireland for authorisation to carry on such a business under the Central Bank and Financial Services Act 2003.”.”.
I welcome the Minister of State to the House. He will be glad to hear that this is a friendly societies Bill. In that spirit, and arising from what we said on the last day, I have proposed amendments for his consideration.
Ireland needs a good portfolio of financial institutions, particularly given what has happened to banks, insurance companies, accountancy firms, pension funds, credit unions and building societies. There is an immense array of difficulties in the sector, as he will know because he is part of the work to correct them. Into that mosaic I would place friendly societies.
Let me explain what friendly societies do. They provide small life assurance benefits, sick benefits and death benefits to the members. I would not like to close the door on that happening again, particularly in the wake of such uncertainty about financial services. I recall the Minister for Finance's efforts to get new banks into this country, given the pillar banks' obsession with property and the danger of a cartel. Therefore, we need a new landscape for financial services.
I propose to amend the first section because it would mean that one could not form a friendly society in the future, ever. The second amendment proposes a restriction on the rating of new capital.
My third amendment seeks the following. If the Central Bank agrees to allow a new friendly society to be set up, and agrees to the new capital limits, would that be a way to solve the very slight difference of opinion between myself and the Minister of State, Deputy Sherlock? One of the statements on the Bill that he made on the last day reads:
.... preliminary step in the process of establishing a system of the most appropriate supervision of certain existing societies, especially operating in the area of financial service provision. That is the ethos under which we are trying to introduce the legislation. It is intended that the group of societies would be subject to Central Bank supervision and that this would be the closed group.
The only words that I differ with him on are "the closed group." What if new people want to set up friendly societies? Such societies have played a major part, and still do, in the adjoining island. They look after the savings and investments of 4.5 million people and have a total fund of £15 billion under investment.
As the Minister of State will know, friendly societies have not participated in some of the financial collapses that have occupied so much Government and parliamentary time in recent years. However, they could play a role and be regulated by the Central Bank. It is in the spirit of the very constructive discussion that we had on the last day that these amendments have been tabled for his consideration. Also, I will not push them to a vote. They are available for consideration by him, as the promoter of the Bill, and by his Department. They are also in line with the McDowell report on financial regulation in Ireland. In fact, the Minister of State has spoken about his knowledge of friendly societies in the Mallow area and, I think, Horace Plunkett was mentioned as well.
I would not write friendly societies or an expansion of their activities off. As he said himself, there seems to be a movement towards the Central Bank. It was also mentioned in the McDowell report. Would he afford the option as he brings the Bill through Parliament?
I am happy to second the amendment.
I thank the Senators for putting forward the amendment.
Section 5, which the Senators are proposing to amend, provides for a significant change to the Friendly Societies Act 1896. That is the cessation of registration of any new societies under section 8 of the legislation. The rationale for the change, as I set out on Second and Committee Stages, is twofold. First, the lack of demand for the friendly society model, evidenced by the fact that there have been just three new entrants in the past nine years. That gives a clear indication that the friendly society model is no longer favoured by newly-establishing organisations.
Second, current legislation does not provide for prudential supervision of friendly societies by any public authority. This is a source of some concern because there is some potential risk to the interests of certain members of the public where societies offer financial services.
Section 8 the 1896 Act sets out the types of society that may be registered. There is currently nothing in the section which would preclude a society from seeking the authorisation of the Central Bank, under the Central Bank and Financial Services Act 2003, to carry on a regulated business as defined in that Act.
The Central Bank Acts provide specific exemptions for friendly societies from the requirements that relate to banking. Under sections 7 and 8 of the Central Bank Act 1971 a friendly society is exempt from the requirement to hold a banking licence.
Under section 29(a) of the Central Bank Act 1997, a friendly society is exempt from the requirement to hold an authorisation as a retail credit firm.
I believe, therefore, that the amendment is unnecessary, and does not add to the Act in terms of clarity. There are no references to a "regulated business" in the Friendly Societies Acts and no definition of what is intended by the term. Introducing such a concept in the manner proposed by the amendment is not practical. Further, the amendment as drafted refers to "a person who wishes to carry on a regulated business" when the Act refers to societies, not persons. In the circumstances, I do not propose to accept the amendment because I do not believe it to be a workable amendment, as currently constituted.
Is the amendment being pressed?
I note what the Minister of State has said. Presumably, it is possible for those who wish to set up a friendly society to apply to the Central Bank. I do not know why the Registrar of Friendly Societies does not want to perform the role any more. She does not want anybody to submit an application to her to set up a new friendly society. I know there has not been much demand. We will have to reconfigure financial services here and I hope that fact might influence the Minister. Of all the financial landscapes, I cannot imagine a sector that has done less harm to the economy than the friendly societies but there we are.
It echoes what we were discussing this morning in regard to banking. I will not press the amendment but I regret it was not accepted. The Parliament is shutting the door on the formation of friendly societies, the registrar does not want to do the task anymore and the Minister of State expressed the sentiment that the Central Bank of Ireland may take over the role. Having expressed my regret, I thank the Minister of State for his consideration but I will not press the amendment.
I move amendment No. 2:
In page 6, between lines 30 and 31, to insert the following:
“(c) the formation of a separate loan fund has received authorisation under the Central Bank and Financial Services Act 2003,”.
We seek to have the creation of a separate loan fund at the discretion of the Central Bank. The registrar does not wish to see separate loan funds being created and the purpose of this section is to shut it down. We are affording friendly societies that wish to use this way of creating loan funds the possibility to expand under the regulation of the Central Bank.
Section 6, which the Senators are proposing to amend, places restrictions on existing societies establishing a loan fund, as provided for in section 46 of the principal Friendly Societies Act 1896 where they do not already have such a fund in place. The change will not have an impact on existing societies that have a fund in place. This amounts to three societies at present. The rationale behind the change, as mentioned on Committee Stage and on Second Stage, is that such activity where it is operated by any other body, is subject to prudential supervision by the Central Bank. There is no prudential supervision by any public authority in the case of a friendly society. While the number of friendly societies operating a loan fund is very small, it is not in the interests of the members of friendly societies that new funds be permitted to be established without appropriate prudential supervision. I hope that addresses the essential spirit of the overarching point made by Senator Barrett.
In section 6, our aim is to prevent friendly societies - apart from the small number already engaged in such activity - from operating a loan fund that is not subject to prudential supervision. The exception provided is to allow any application that may be in hand, where an application to register a rule change has been passed by the society and lodged with the registrar by the operative date, to progress under the current rules so that it will not disadvantaged an existing society. Given the general lack of interest, even among existing societies, in operating in the area, an influx of societies seeking to establish loan funds is not anticipated.
The Senator's proposal is worded to amend section 6 and to require that "the formation of a separate loan fund" should receive authorisation under the Central Bank and Financial Services Act 2003. This is not a workable amendment because the Act authorises the carrying on of the financial activity itself, namely, the granting of loans, not formation of the fund. On that basis, I do not propose to accept the amendment.
If the amendment is being pressed, it will have to be seconded. Is the Senator pursuing the amendment?
I was trying to take up the invitation of the Minister of State to address the fact that we have no prudential supervision of friendly societies by putting it under the Central Bank. The registrar does not want to do it, the Central Bank does not want to do it and the friendly societies cannot set up loan funds. That we run into these culs-de-sac explains the background to some of the financial mess the country is in. Maybe we will refer it onto all the other contentious items before the banking review. It was plain under section 6 that a society may not establish a loan fund after the coming into operation of the section. As the Minister of State said, it does not affect an existing society that currently operates a loan fund. We tried to set up a facility where the friendly society could operate the loan fund under the Central Bank, which is the financial services authority for the country, and the amendment was not acceptable. I accept what the Minister of State said.
If there is so little interest and appetite for regulating the sector in respect of the Registrar of Friendly Societies, perhaps it can be transferred to the Central Bank. Maybe the banking committee will look into this matter. I see the sector having a much better future than the Bill envisages and I would not rule it out. I will not press the amendment. Certain contradictions are manifest. This is shutting off options for a sector that might very well have a role to play. I thank the Minister of State.
I move amendment No. 3:
In page 7, between lines 14 and 15, to insert the following:
“(5) The powers, functions and duties of the registrar of friendly societies under sections 5 and 6 shall be transferred to the Central Bank of Ireland from the operative date.”.”.
Given the lack of interest and lack of appetite from the Registrar of Friendly Societies, the amendment suggests that the Central Bank takes over. This was the intention of the McDowell report in any case. We need financial regulation in the country and it is a matter for the banking inquiry. That is why I tabled the amendment. Friendly societies play a big role in other countries, particularly the United Kingdom, and the sector has not been developed here as I and the Minister of State would wish. Why shut it off rather than have comprehensive regulation of financial services? In the adjoining island, friendly societies have 4.5 million members and total funds of €15 billion. We have a very pessimistic view in the Bill about the possibility of such development. Would it develop better under regulation by the Central Bank? This is the reason behind the amendment.
Section 8, which the Senators are proposing to amend, removes the restriction in the current Act providing that the registrar must be absent for the powers, functions and duties to be exercised and performed by such other person as the Minister may authorise, and allows another person to act alongside the registrar. The change is necessary as, for the past number of years, the role of Registrar of Friendly Societies has not been a dedicated role, but has been fulfilled by the Registrar of Companies in addition to her existing duties.
The amendment proposed by the Senators, which I understand seeks to transfer powers of the Registrar of Friendly Societies to the Central Bank, will not operate as intended by the Senators because section 5 of the 1977 Act sets out powers of the Minister with regard to the Registrar of Friendly Societies and not the powers of the registrar. There is a reference to the powers, functions and duties of the registrar in section 5 but it relates to who may be authorised by the Minister to perform these powers, rather than setting out the powers themselves. Section 6 of the 1977 Act does relate to a specific power regarding cancellation of the registration of societies but, as I do not believe it to be the intention of the Senators in drafting this amendment to transfer powers solely relating to cancellation of societies to the Central Bank, I do not accept the amendment.
It is intended to examine further with the Central Bank and the Department of Finance the issue of appropriate prudential supervision for friendly societies. At present the powers to exercise such supervision do not exist under the friendly societies legislation and therefore appropriate powers must be put in place. No existing powers can be simply transferred. It is considered that the best place to address the matter is under the Central Bank Acts rather than the Friendly Societies Acts.
I wish to restate what I said on previous Stages. The Friendly Societies Acts do not confer corporate status on societies or limited liability on members. The evidence in recent years is that it has become common practice for many charities and clubs to register as limited companies. I hope to give some confidence to Senator Barrett in addressing the points he has made by reiterating that the most realistic institutional option for introducing an appropriate system of supervision is the Central Bank, which is at the centre of financial supervision and financial stability oversight. It has a responsibility to provide in a fully integrated and co-ordinated manner for the prudential supervision and stability of all financial services within the financial system as a whole. To avoid the possibility of other bodies moving into this unregulated area it was decided to close registration to new friendly societies.
Section 8 states, "The powers, functions and duties of the registrar of friendly societies may be exercised and performed by such person or persons as the Minister may for the time being authorise." We have added a subsection that states, "The powers, functions and duties of the registrar of friendly societies under sections 5 and 6 shall be transferred to the Central Bank of Ireland from the operative date." That is what the Minister of State has said and he is working on it. I believe we are far closer than it might appear.
I wish the exercise Godspeed. I would prefer if the reference was in the Bill. The Minister of State is thinking about it and I commend him on that. Let us put in a reference such that it will go to the Central Bank since the powers exist under section 8. Our amendment proposes that the issue of new start-ups and loan funds should also be considered by the Central Bank.
I am happy to leave that with the Minister of State and his officials for consideration. I hope that the Minister of State and the Governor, Professor Honohan, will bring proposals back to the House soon. That is the logical place to have it. I agree with what the Minister of State has said. I was simply trying to get it down on print in his Bill.
I wish to take a few brief moments to thank the Members for their contribution to the debate. In particular, I thank those Senators who put down amendments. I assure them that the area of financial prudential supervision is something that is been taken seriously. This is best carried out through the Central Bank Acts. While I am not accepting the amendment I hope we have addressed adequately the substantive issues in the legislation. I thank the Senators for their co-operation and their time.
I thank the Minister of State and wish him success in any contest in which he might be participating in the near future.
I pay tribute to the Senators who put down the amendments. The process has given us greater insight into the workings of the friendly societies. Important amendments have been introduced in the area of industrial and providential societies aimed at making the regulatory burden on co-operative societies easier and making examinership, which is currently unavailable to co-operative societies, accessible. This is very much to be welcomed. A good day's work has been done in the passing of this legislation. I thank the Minister of State for steering it successfully through the House.
I thank the Minister of State for bringing the Bill through the House. I commend the Independent Senators, in particular, Senator Barrett, who always has a valuable contribution to make and who has a deep knowledge of these issues. I thank Senator Barrett for withdrawing his amendment and not pushing it to a vote. I thank the Minister of State again.
The Companies Bill has been deferred to next week so this concludes the business. When is it proposed to sit again?
At 2.30 p.m. next Tuesday, 10 June 2014.
