Building Societies (Funding) and Mutual Societies (Transfers) Bill

moved Amendment No. 1: 1: Clause 3, page 3, line 36, at end insert— ““( ) If a draft of an order mentioned in subsection (6) would, apart from this subsection, be treated for the purposes of the Standing Orders of either House of Parliament as a hybrid instrument it must proceed in that House as if it were not such an instrument.”” The noble Lord said: We are grateful to the noble Lord, Lord Naseby, for taking forward this Bill, which started out as a Private Member’s Bill in the other place in the name of the honourable member for Bournemouth West. We are also grateful for the continuing assistance of the noble Lord and his advisers in helping to develop the amendments that I am putting forward today. The Government are introducing the amendments to fulfil a commitment given in the other place to extend the Bill to mutual insurers. That in turn has given rise to other issues, such as mutuals in other EEA states, hybridity and the charging powers of the Financial Services Authority, which the amendments also deal with. Finally, the amendments allow the Bill to be extended to the Channel Islands and the Isle of Man. There was insufficient time to consult the islands’ authorities on that during proceedings in the other place. Before moving on to the substantive issues raised by the amendments to Clause 3, I shall briefly remind the Committee about the overall purpose of the Bill. It introduces helpful amendments to building societies legislation in relation to the wholesale funding limit and the position of their members in the event of an insolvency. With regard to today’s debate, the Bill will also make it easier for one type of mutual society to transfer to the ownership of another type of mutual society as a subsidiary company, while retaining important elements of mutuality. Mutual insurance companies and equivalent European mutuals will be included as a result of the proposed amendments. The Government welcome this opportunity to update the legislation on building societies and other mutual societies. We are sympathetic to the reforms that are being introduced, particularly as they have the potential to significantly benefit members of mutuals. The Treasury will consult publicly on the secondary legislation that will implement the Bill. I turn to the detail. Clause 3 gives the Treasury the power to modify legislation relating to transfer of business of building societies, friendly societies and industrial and provident societies. I will refer to these together as ““mutual societies””. The clause will allow the Treasury to modify the statutory provisions that apply to such transfers, to make them less onerous. That is intended to make it easier for mutual societies to acquire other mutuals and develop group structures. Certain safeguards, such as members’ rights and safeguards against demutualisation, will remain in place. In Committee in the other place, the Government gave a commitment to try to extend Clause 3 to mutual insurers by introducing amendments at Third Reading. A mutual insurer could be one of the three types of mutual society, or it could be a Companies Act company or have another legal form. The effect would be that a mutual society could transfer to a subsidiary of a mutual insurer under the new provisions on the same terms as it could transfer to a subsidiary of another mutual society. In the event, it was not possible to introduce amendments at Third Reading, which was held two days after Committee, on 27 April. However, at Third Reading the Government gave a further commitment to consider amendments and, if possible, to table them in your Lordships’ House. The second and third amendments fulfil that commitment and I will explain those amendments first. Amendment No. 2 widens the definition of ““mutual society”” in Clause 3 to include EEA mutual societies. Amendment No. 3 defines ““EEA mutual society””, which can be a European co-operative society, a co-operative society in any EEA state or any other type of body specified by the Treasury by order. That definition is wide enough to encompass mutual insurers and, by permitting transfers under the new provisions to a mutual society established in any EEA state, it ensures that there will be no breach of EC law. The power to specify other types of body will be exercised by the affirmative resolution procedure if made in the main order amending the transfer provisions for mutuals, or by the negative resolution procedure if made independently of that order. The effect of the amendments is that modifications made by an order under Clause 3 to the legislation governing transfers of mutual societies will apply in two cases: first, where the transfer is to a subsidiary of one of the three types of domestic mutual society; secondly, where the transfer is to a subsidiary of an EEA mutual society. The wide definition of ““EEA mutual society”” ensures that mutual insurers and other mutual societies in any EEA state wishing to acquire other mutual societies as subsidiaries will be able to benefit from the changes in the same measure as domestic mutual societies. The additional power gives the Treasury the flexibility to specify particular types of mutual society as and when the need arises, which it would not be possible to do in primary legislation. The first amendment standing in my name concerns the procedures applying to an order made under Clause 3, which will amend the provisions in legislation dealing with transfers by the various types of mutual society. As Clause 3 will be extended to EEA mutual societies, an order made under that clause may have effects that are peculiar to a particular mutual and so would, potentially at least, fall to be treated as hybrid under Standing Orders but for this provision. In particular, the order may make provisions as to the rights of members under subsection (2) in consequence of a transfer. Those provisions could include giving members of the transferring mutual membership rights in the holding mutual society, which could affect the constitution of that society. I remind noble Lords that the Clause 3 power uses the affirmative resolution procedure. I beg to move.