Meeting with Jim Murphy MP, Secretary of State for Scotland
18th November 2009
Glasgow City Chambers
The Board of the Scottish League of Credit Unions and representatives of a number of member credit unions met with Jim Murphy MP, the Secretary of State for Scotland and Ann McKechin MP, Parliamentary Under Secretary of State for Scotland, to discuss our concerns regarding the Financial Services Compensation Scheme (FSCS) and our proposals for taking the credit union movement forward.
The Minister was aware that levies were being made on credit unions at the moment in respect of the 5 banking institution defaults of 2008. All present agreed that the levies for the current year did not present a significant financial imposition on the credit union movement. The Minister was made aware that the levy will continue to be imposed for the next three years, and that all four years’ levies together will cost the credit union movement £1Million in total.
What came as a surprise to the Minister was the confirmation that credit unions will additionally be required to meet their share of any unrecovered losses once the liquidation of the 5 banking institutions’ assets is completed. Even with a 70% ‘recovery’ in these assets (the FSCS’s past experience with credit unions) the credit unions’ contingent liability could still potentially be as high as £2.7 million (30% of the £9 million allocated to credit unions under the current FSCS framework). For one credit union present at the meeting with assets of approximately £5 million, even with a 70% recovery the remaining contingent liability could easily amount to £17,000. Mr Murphy commented “there is no way a credit union will be asked to pay £17,000”. However, that is the likely outcome if the legislation is applied as it currently stands and for several GB credit unions the figure may well be significantly higher.
With regard to the levies, the SLCU requested:
· That Credit Unions’ FSCS obligations be restricted to the indentified levies (interest and management fees) for the years 2009, 2010, & 2011 with the subsequent credit union contingent liability that will be crystallized in 2011 being eliminated in full by reallocation to the general banking sector from where it originated. The SLCU notes that the total losses incurred by the FSCS solely due to credit union defaults (after recoveries) is around £1million (£4 million less the current recovery of approximately £3 million), so effectively the movement is putting back into the scheme the same amount of money it has cost it.
· That in 2011, Credit Unions should exit the current arrangement for deposit guarantees and should enter their own guarantee scheme under the FSCS
· That Credit Unions should at that time be able to exit the current scheme with no contingent liability for any outstanding unrecovered losses as is now the obligation.
The SLCU proposed the following as a basis for a future system of deposit guarantee and supervision:
· That there must be a deposit guarantee scheme in place by which members of credit unions can have full confidence that their savings are protected.
· That the credit union movement should be responsible for the defaults of credit unions only
· That this can only be achieved by having a regulatory and supervisory regime which has the power and authority to ensure the financial sustainability and viability of GB credit unions and where the Regulatory Authorities (FSA) carries the liability for failing to supervise adequately. It was further suggested that the government recognises a unique Scottish credit union identity and to accept that although ABCUL is the larger of the 4 GB credit union trade associations it does not necessarily speak on behalf of the entire credit union movement.
The meeting was very cordial and the Minister clearly understood the concerns of the SLCU. It was agreed that he would arrange a meeting before Christmas between the Treasury Minister responsible for credit unions and the Scottish League of Credit Unions to address the proposals noted above. Several boxes of petitions from credit union members were passed to the Minister at the conclusion of the meeting.
