The Australian Government has been considering introducing a financial claims compensation scheme for retail depositors in a failed authorised deposit-taking institution for some time.

In the UK from 1
October 2007, should a bank, building society or credit union go into default the Financial Services Compensation Scheme  will be able to pay compensation to 100% of the first
£35,000 per person.

On 11 October 2007, HM Treasury, the Financial Services Authority and the Bank of England, issued a discussion paper Banking Reform – Protecting Depositors on reforming the
framework to protect depositors.

The UCCCMC has announced that an amendment is expected to be made soon to the Consumer Credit Code (the Code) to regulate the use of bill facilities, that is, promissory notes and bills of exchange, by non-ADI’s. Consultation has been occurring since April 2006.

Once the amendment is made (possibly by the end of October 2007), the Code will apply to the use of bill facilities where the credit is provided wholly or predominantly for personal, domestic or household purposes. In Western Australia and Tasmania, this change will take effect at a slighter later date. Bill facilities were previously exempt from the Code.

This amendment will not apply to commercial bill facilities or to any
bill facility (no matter what the purpose) provided by an ADI.

The application of the Code to bill facilities will be brought about by the Consumer Credit (Bill Facilities) Amendment Regulation 2007. By bringing bill facilities within the Code, consumers will benefit from key protections in the Code, including full disclosure of fees and charges, controls on the calculation of interest, access to hardship arrangements and procedural protections in enforcement situations.

UPDATE: The
Consumer Credit (Bill Facilities) Amendment Regulation (No. 1) 2007 (Qld) was enacted on 30 November 2007. Read the Explanatory Memorandum for more details.

The UK Parliament’s All-Party Parliamentary Group for Building Societies and Financial Mutuals published a report in December 2004 which considered whether regulation lead to demutualisation.

It decided that the drive for new capital was the prime factor in demutualisation and not regulation.

The Group published a further report in March 2006 entitled Windfalls or Shortfalls? The true cost of Demutualisation following an Inquiry.

The Terms of Reference for the Inquiry were:
• Are former mutuals better than remaining mutuals at providing financial services?
• Is there any evidence to suggest that demutualisation has improved the performance of former societies?
• What effect has demutualisation had on the remaining mutual sector?
• How has demutualisation affected consumer choice?
• Have consumers benefited from demutualisation?
• Did the level of windfalls reflect the economic value of members’ interests?

The Inquiry concluded that, amongst other things :

• mutuals, both in the building society and life assurance sectors, performed better than their plc rivals in a variety of financial performance indicators. It was also shown that they pass these cost advantages onto consumers in terms of better rates. This was clearly backed up by any study of ‘best buy’ tables.
• the strategic direction chosen by an institution’s board, particularly one pursuing corporate growth, may push it towards the plc model. This is especially so in the life sector, where some mutuals have sought extra capital.
• There was a widespread view amongst those giving evidence to the Inquiry that members in previous
  demutualisations lacked a full understanding of what they were voting for. A combination of the media’s focus
  on ‘free’ windfalls, strong campaigning for acceptance by directors of the converting institutions, and the noisy urgings of the “carpetbaggers” led to one-sided debates.
• The Inquiry heard evidence that the impact of subsequent higher charges had, over time, outweighed the
  benefits of the pay-outs for many members. Others meanwhile, gained pay-outs which were disproportionately large given the level of their interests.

The report also refers to the first case of ‘re-mutualisation’ in 2005 – where former building society Bristol & West’s savings business and branch network were bought by the Britannia Building Society.

In Australia, Part 5  of Schedule 4 to the Corporations Act regulates demutualisations including disclosure of proposed demutualisations.