Wednesday, 7 May 2014
Friendly Societies and Industrial and Provident Societies (Miscellaneous Provisions) Bill 2013: Committee Stage
I thank the Senator for proposing this amendment. To be fair to the Government side, we addressed many of those questions on Second Stage and given that this is Committee Stage, I will begin by giving the rationale for section 5 and then give a brief overview of some of the issues raised by the Senator.
Section 5 provides for a very significant change to the Friendly Societies Act 1896, that is, the cessation of registration of any new societies under this legislation. Only a few societies, 47, remain in existence. There have been only three new entrants in the past nine years giving a clear indication that the friendly society model is no longer favoured by newly-establishing organisations. The current legislation does not provide for prudential supervision of friendly societies by any public authority. This is a source of some concern in that there is some potential risk to the interests of certain members of the public and I consider that it is in the public interest to restrict the operation of new entities in this area. That is the justification for section 5. Furthermore, certain limitations are already being placed on the activities and functioning of friendly societies by other bodies of legislation. For example, the Health Insurance (Miscellaneous Provisions) Act 2009 introduced restrictions on new bodies registering for the purpose of the provision of health insurance, that is, no new bodies may register as restricted membership undertakings; the Charities Act 2009 introduces a new charities regulatory authority and registration requirements to which several of the benevolent type societies may be subject; and the Consumer Credit Act 1995 brings a small number of societies under the supervision of the Central Bank for loans purposes.
I assure the Senator that there is no disadvantage foreseen to any would-be societies in that they can register, either under the Industrial and Provident Societies or the Companies Acts, in both instances with the added protection of body corporate status. The Friendly Societies Acts do not confer full corporate status on societies or limited liability on members. The evidence over recent years is that this has become common practice for many charities and clubs which register as limited companies. This change will mean in effect that the friendly society model will continue only as a closed group of societies, that is, the existing societies will continue in operation but no new societies will be permitted to establish.
The Central Bank regulates savings, loan and insurance activities carried out by entities involved in the provision of financial services with a view to protecting the financial interests of members of the public doing business with the provider of the financial services but not where these activities are carried out by friendly societies. This is a source of some concern to the Government in that there is some potential risk to the interests of certain members of the public and we consider that it is in the public interest to restrict the operation of new entities in this area. There is no expertise in this area in the registry of friendly societies and no existing legal basis for such supervision and it would not be practical given the number of societies involved to develop a supervisory regime within the registration of a friendly society, RFS. 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 and has a responsibility to provide, in a fully integrated and co-ordinated manner, for the prudential supervision and stability of all types of financial service within the financial system as a whole. To avoid the possibility of other bodies moving into this unregulated space, it was decided to close registrations to new friendly societies.
I hope that addresses the concerns raised by Senator Barrett in his amendment. Only a few societies, some 47, remain in existence. There have been only three new entrants in the past nine years and that must indicate that newly-establishing organisations no longer favour the friendly society model. We feel strongly that no new societies may register in the future as friendly societies.