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Institute for Social Banking | ISB Paper Series, No. 6, Sep 2010 | www.social-‐banking.org
ISB Paper Series Selected Research Papers on Social Banking and Social Finance
No. 6
Regulation or Self-‐Regulation for UK
Community Development Finance
Institutions?
A critical review of literature.
by Stuart Field
Originally submitted as assignment in the Masters on Social Banking and Social
Finance, University of Plymouth, March 2010.
Institute for Social Banking | ISB Paper Series, No. 6, Sep 2010 | www.social-‐banking.org
About Stuart Field
Originally, I intended to become a scientist, and did my first degree at Cambridge University
where I obtained a BA in Natural Sciences. However, issues around the socially irresponsible
uses of science led me to change my mind and become involved in setting up alternative
social and educational projects. Obtaining finance was often a sticking point for these pro-‐
jects, but by working as what is now the UK branch of Triodos Bank, I learned about finan-‐
cing social projects. This enabled me to help the Radical Routes network of co-‐operatives set
up its loan fund, and I worked there as a part-‐time financial administrator while also working
part-‐time in computer consultancy. In 1999 I went to the Netherlands to work for the Dutch
equivalent of Radical Routes, returning to the UK in 2004. After working as a charity advisor
for a time, I found a job as a Business Manager of a Community Development Financial Insti-‐
tution (CDFI), which makes loans to small businesses.
It was during this job that I started the MA in Social Banking and Social Finance. Part way
through the course I left the CDFI where I worked. I am now assessing the performance of
other CDFIs for their national association, the Community Development Finance Association.
I am also the treasurer of Rootstock Ltd, the CDFI linked to Radical Routes. At the same time
I am also involved in a very different area of work: writing a musical.
Birmingham, UK.
To get in touch with Stuart Field, please write an e-‐mail to [email protected].
Institute for Social Banking | ISB Paper Series, No. 6, Sep 2010 | www.social-‐banking.org
Abstract
Regulation or Self-‐Regulation for UK Community Development Finance Insti-‐
tutions? A critical review of literature.
By Stuart Field
This paper examines the body of knowledge addressing the question: What form of regula-‐
tion or self-‐regulation is appropriate for community development finance institutions in the
UK? The findings in the literature are examined critically in the light of the historical and
international context of the development of community financial initiatives in the UK. Fur-‐
ther critical review of regulatory and self-‐regulatory approaches is provided by brief case
studies of two wellpublicised failures: one of a community development finance institution
and one of a mutual savings and loan society. The literature survey and the case studies are
used to illustrate the background to recent proposals for new legislation.
Regulation or Self-Regulation for UK Community Development Finance
Institutions? A critical review of literature.
Module: MEIS501B – Independent Study Module
Mode: Critical Review of a Body of Knowledge
Integrated Masters Programme at University of Plymouth
Word count: 5404 words
Date of submission: 31st March 2010
Stuart Simon Mark Field Engine Arm Moorings
Rabone Lane Smethwick B66 3JH
UK
Student reference number: 10135217
Regulation or Self-Regulation for UK CDFIs – Stuart Field 2
Regulation or Self-Regulation for UK Community Development Finance Institutions? A critical review of literature.
ABSTRACT This assignment examines the body of knowledge addressing the question: What form of regulation or self-regulation is appropriate for community development finance institutions in the UK? The findings in the literature are examined critically in the light of the historical and international context of the development of community financial initiatives in the UK. Further critical review of regulatory and self-regulatory approaches is provided by brief case studies of two well-publicised failures: one of a community development finance institution and one of a mutual savings and loan society. The literature survey and the case studies are used to illustrate the background to recent proposals for new legislation.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 3
Table of Contents A. Introduction....................................................................................................4
I. The regulation question and its current relevance......................................4 II. Community development finance in the UK ...............................................5 III. Reasons for financial regulation .............................................................6 IV. Regulation of financial services in the UK...............................................9
1. Regulated areas .....................................................................................9 2. Unregulated areas ................................................................................11 3. Self-regulation ......................................................................................11
V. Relevance to my professional practice.....................................................12 B. Critical analysis of the literature ...................................................................13
I. Methods ...................................................................................................13 II. Literature specifically on UK CDFI regulation...........................................14
1. Prior to Social Investment Task Force ..................................................14 2. Research at the time of the Social Investment Task Force...................16 3. Performance Framework: first self-regulation proposals ......................18 4. Bank of England study..........................................................................19 5. Community Investment Tax Relief........................................................20 6. Financial Services Authority and Code of Practice ...............................21
III. Lessons that could be learned from failures .........................................22 1. Ethnic Mutual........................................................................................23 2. Presbyterian Mutual..............................................................................24 3. Lessons from these cases ....................................................................26
C. Conclusion ...............................................................................................27 I. Positions on regulation versus self-regulation ..........................................27
1. UK Government's position ....................................................................27 2. Other positions .....................................................................................27
II. Final observations ....................................................................................28 D. References...............................................................................................29 E. Appendices ..................................................................................................34
I. Appendix A: my 1999 Treasury consultation response ............................34 II. Appendix B: my 1999 article on Grether Ost ............................................37
Regulation or Self-Regulation for UK CDFIs – Stuart Field 4
A. Introduction
I. The regulation question and its current relevance
The 2007-2009 banking crisis has focused attention on deficiencies in the
functioning of banks and other financial institutions. One of the issues is how
financial institutions should be regulated, and whether more intensive regulation
might have prevented the crisis.
Community activists have been arguing since well before the banking crisis that
local, community-based alternatives to banks were needed, especially in areas
where the banks were reluctant to lend. In recent years, government support has
been provided to encourage the growth of two types of community-based
alternatives: credit unions and community development financial institutions
(CDFIs).
Partly because of the public money put into them, there has been some interest
in what type of regulation is appropriate for each. While credit unions in the UK
have a relatively clear regulatory framework, with a section in the Financial
Services Authority specialising in regulating them, the same is not true for CDFIs.
Indeed, no definitive decision has yet been made as to whether CDFIs should be
subject to direct regulation or a self-regulatory system.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 5
In this assignment, I will examine the literature on the issue of the extent to which
regulation or self-regulation is most appropriate for CDFIs in the UK, and make
recommendations in the light of my professional practice in this area following
two recent well-publicised failures of related financial institutions.
II. Community development finance in the UK
CDFIs in the UK generally fall into one of three categories: personal lenders,
business lenders and social enterprise lenders. Some CDFIs make loans in more
than one category, for example a business lender will often make a few loans to
social enterprises.
A key event for community development finance in the UK was the report from
the Social Investment Task Force (Social Investment Task Force, 2000), which
resulted in government funding being used to finance new CDFIs. As a result,
most CDFIs in the UK are relatively young, dating from after this funding became
available. The funding was provided on condition that CDFIs only provide loans
where the banks refuse a loan or only provide part of the finance needed,
meaning that CDFIs using this funding would typically lend at higher risk than
banks.
This is being reappraised in the light of the banking crisis. The banks have
Regulation or Self-Regulation for UK CDFIs – Stuart Field 6
experienced substantial loan losses even at their lower levels of risk, leading to
concerns about the future of the UK CDFI sector if they continue to act as
“lenders of last resort” (Giotis, 2009).
At the same time, there are also a few other CDFIs which pre-date the wave of
government funding and are often based on other models. Social banks (Charity
Bank, Triodos Bank and Unity Trust Bank) lend out more money in total than all
the government-funded CDFIs put together. There are also a few specialist loan
funds using a variety of models, some requiring subsidy and some not.
III. Reasons for financial regulation
Well before the current crisis, Currie (2003, p.2) criticised the 'failure of existing
theories of regulation to put forward a cogent argument for the role of regulation',
arguing that there was no general theory of financial regulation that could
adequately deal with the reality of financial crises. From my own professional
experience I would suggest the following reasons for financial regulation:
1. Utility - in developed societies, financial services have become as much a
public utility as water and electricity, and so should be regulated in order to
ensure continuity of availability. Linked to this are regulations to stop “redlining”
(exclusion from financial services of people living in a certain area) such as the
Regulation or Self-Regulation for UK CDFIs – Stuart Field 7
Community Reinvestment Act in the USA.
2. Financial stability - problems in financial markets can undermine the whole
economy. This is used as an argument for additional regulation of institutions or
financial mechanisms that are large enough to pose systemic risk if they fail.
3. Financial asset protection - the need to ensure that customers have a safe
place to keep their money. Protection of bank deposits is the most common of
these, but there are also other non-bank products (e.g. national savings
certificates, market-based investments with guaranteed minimum returns) that
fall into the same category. Regulation typically involves compulsory registration
and participation in compensation schemes.
4. Consumer protection - the need to ensure customers are treated fairly and not
ripped off. Regulation here focuses on registration schemes and consumer rights
attached to a product, e.g. disclosure of the costs and risks associated with a
product, providing "cooling off" periods after signing up etc.
5. Crime prevention - trying to stop criminal misuse of money in the financial
system, or preventing money derived from illegal activity (including tax evasion)
being hidden within financial institutions. Care must be taken to ensure that
tactics used to stop money laundering and fraud do not also impede legitimate
Regulation or Self-Regulation for UK CDFIs – Stuart Field 8
financial activities.
6. Money supply regulation. When a financial institution lends money, the loan
proceeds typically end up in other bank accounts, e.g. when purchasing items.
The bank receiving this money can lend it out to someone else. This could go on
ad infinitum until the value of money itself was destroyed unless limits are placed
on lending of deposited funds. Regulation typically involves registration of banks
and restricting lending to a multiple of capital, i.e. insisting on minimum capital
ratios, with the actual ratios chosen being partly a tool of government money
supply policy. An undesirable consequence of this is the creation of "shadow
banks" which avoid this regulation and capital ratio protection. Security on loans
is related to this, as when a loan is secured, the security (e.g. property) provides
backing for the money created, much as gold was once used to back currencies,
so unsecured loans may need specific regulation to stop them undermining the
backing of a currency.
7. Protection of public confidence. This is a political and psychological issue, as
regulators want to be seen to be tough and banks want to be seen to be stable. If
a bank is seen to be weak, this can lead to a run on deposits which can further
weaken it, as happened with Northern Rock in September 2007.
8. Regulation can also be introduced for political reasons, e.g. restricting bankers'
Regulation or Self-Regulation for UK CDFIs – Stuart Field 9
bonuses.
Finally, it is worth mentioning a key argument against regulation: it incurs costs
for regulator and regulated, so that in a globalised financial services market,
more regulation in one country may cause business to move to countries where
there is less regulation.
IV. Regulation of financial services in the UK
The banking crisis has led to debate on the best way of regulating financial
services in the UK, with variations in policy between political parties on this issue.
1. Regulated areas
Banking is the most controversial area of regulation because of the complex
system of regulation employed. Three institutions form the “tripartite” authorities:
the Financial Services Authority (FSA), which regulates the provision of financial
services by banks and others; the Bank of England, which is responsible for
financial stability; and HM Treasury, the government's finance department,
whose objective is:
‘...to secure an innovative, fair dealing, competitive and efficient market in
financial services, while striking the right balance with regulation in the
Regulation or Self-Regulation for UK CDFIs – Stuart Field 10
public interest.’ (HM Treasury, 2009a)
However, there are other organisations besides these three that are involved in
regulating banks. The FSA regulates the taking of deposits by banks, mortgages
to individuals (though not to companies) and some types of insurance which are
often linked to loans such as payment protection insurance. However, loans to
individuals which are not secured by a mortgage are regulated by a different
organisation, the Office of Fair Trading (OFT), unless they are business loans
over £25,000 or certain loans to high-net-worth individuals (Office of Fair Trading,
2008). So in practice the OFT is a fourth regulator for banks, since most banks
make unsecured loans to individuals.
Banks typically offer a range of other financial services besides their core
function, and the FSA regulates many of these too. Often it is not the bank itself
but an associated company that is regulated by the FSA. For example, if a bank
wants to provide its customers with access to independent financial advice, it
might set up a separate company independent from the bank to offer this, and
that independent company would be FSA regulated. Likewise, banks would
normally set up separate, independently-regulated companies for functions such
as stockbroking and insurance.
The same rules apply to financial services providers, except that because they
do not offer the core banking function of deposit-taking, they would only be
Regulation or Self-Regulation for UK CDFIs – Stuart Field 11
regulated for the services they actually do provide. Even so, multiple regulators
are possible, e.g. a loans company might be regulated by the FSA for its
mortgage loans and by the OFT for its unsecured loans.
Credit unions in the UK are a special case. They are specifically exempted under
the Second European Banking Co-ordination Directive from being considered
banks, and are regulated under their own separate UK legislation by a separate
department within the FSA. Legislation is being proposed to extend the remit of
credit unions (HM Treasury, 2009b; HM Treasury, 2010a).
2. Unregulated areas
Some areas of financial services in the UK remain unregulated. An example was
given above: loans over £25,000 for business purposes and certain loans to high
net worth individuals are exempted from OFT regulation under the Consumer
Credit Act 2006 (Office of Fair Trading, 2008). In addition, all loans to companies,
whether secured or unsecured, are also exempted from the Consumer Credit Act
and other current financial services legislation. Any financial service provider
which only provides these exempted financial services is not regulated at all.
3. Self-regulation
Regulation or Self-Regulation for UK CDFIs – Stuart Field 12
The Community Development Finance Association (CDFA) has a Code of
Practice that its member CDFIs must abide by, which was developed in
conjunction with the FSA as 'an alternative to more formal FSA regulation'
(Briault, 2006). It also has a system of assessment of CDFIs called Change
Matters, which is also called “the performance framework” as it was developed
from an earlier set of key indicators also called the performance framework. At
present this system is primarily used to inform funders:
‘By setting standards of performance and working closely with our members to achieve them, the cdfa is able to advocate and work with central government, regional development agencies banks and other stakeholders to draw attention to ways they can invest in CDFIs with quality assurance for their investment’ (Community Development Finance Association, 2010) This process does not replace other regulation but rather complements it, e.g.
registration and compliance with the Consumer Credit Act 2006 is looked at as
part of the Change Matters assessment. However, Change Matters has several
self-regulatory aspects, not least because of the input of financial regulators into
the design of the performance framework.
V. Relevance to my professional practice
The issue is relevant to me as I have been involved in the CDFI sector since
1992. Part of my current work involves carrying out Change Matters
assessments of CDFIs as an independent consultant. The introduction of
external assessments is a relatively recent development, and it will probably be
Regulation or Self-Regulation for UK CDFIs – Stuart Field 13
some time before the full value of these assessments are seen. At the same
time, I also carry out voluntary work as the treasurer of a small CDFI, so I can
see the issues from a CDFI board member's perspective as well.
There will be a General Election in the UK this year. The banking crisis has
focused some attention from political parties on the issue of financial regulation,
although the main concerns tend to revolve around major financial institutions
and bankers' bonuses, with CDFIs rarely mentioned if at all. It is not clear if the
new government will continue to support Change Matters or propose a different
approach to assessing and regulating CDFIs. A good grasp of the body of
knowledge in this area could help in preparing an informed response to any new
proposals.
B. Critical analysis of the literature
I. Methods
From my professional practice and previous studies I am already familiar with
some of the literature on regulation of UK CDFIs. I carried out a search for
additional literature in three ways. I looked at references quoted in key papers
and in selected cases contacted the authors to ask if there was any additional
literature they were aware of. I also searched the Internet using a wide range of
search terms. The results of these enquiries made me conclude that there is
Regulation or Self-Regulation for UK CDFIs – Stuart Field 14
relatively little literature specifically on regulation of the UK CDFI sector. Here
follows an analysis of the literature I am aware of, which I will go through
approximately in chronological order so as to give an impression of
developments in the sector over the years.
II. Literature specifically on UK CDFI regulation
1. Prior to Social Investment Task Force
Before the Social Investment Task Force report (Social Investment Task Force,
2000) there was very little literature on regulation of UK CDFIs, as they were not
recognised as a separate sector until then. Indeed, while working in the sector in
the 1990s I rarely came across the term CDFI before 2000, except very
occasionally to describe organisations in the USA.
In his book Short Circuit, Richard Douthwaite argues the need for locally-based
economic initiatives including community finance (Douthwaite, 1996). The
chapter ‘Banking on Ourselves’ includes many examples of the problems caused
by regulation in a variety of community finance organisations from several
countries including the UK. One issue raised was the dilemma of whether to try
to raise enough capital to apply for a banking licence. Regulatory problems
affected both banks and non-banks, and included disproportionately high costs of
compliance and misunderstanding of regulators. The examples were presented
Regulation or Self-Regulation for UK CDFIs – Stuart Field 15
convincingly, though no alternative ideas for better regulation were mentioned.
Ideas for regulation of community finance did appear in Malcolm Lynch's paper
'Legal Regulation of Social Economy Finance Organisations' (Lynch, 1997). This
focused on the regulatory situation within the European Union. One idea was that
social economy finance organisations should be given derogations from the
European banking co-ordination directives. If they do become banks, they ought
to be allowed a lower capital threshold of €1 million rather than the standard €5
million, according to Lynch. The UK however continued to use the €5 million
threshold, e.g. for Charity Bank (Charity Commission, 2002). All the same, for
some organisations even a €1 million capital threshold is too much, such as the
small Czech credit unions which had to close when the Czech Republic
implemented the banking directives using this €1 million threshold for credit
unions (Johanisova, 2005). Lynch also described various other mechanisms he
had developed for non-bank finance initiatives to raise investment, including ones
used by some organisations I had been involved in during the 1990s.
Because of my involvement in these organisations, I responded to a Treasury
consultation (HM Treasury, 1999) on amending the exemption from the Banking
Act for withdrawable share capital issued by Industrial and Provident Societies,
which is one of the methods CDFIs use to raise funds. My response (Field,
1999a) is reproduced in Appendix A.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 16
2. Research at the time of the Social Investment Task Force
The Social Investment Task Force (2000) report made the case for government
support of the CDFI sector. The report itself has remarkably little on regulation,
comprising part of Recommendation 5 in Chapter 2:
‘It would be fatal to over-regulate the emerging community development finance sector, but we recommend that the Financial Services Authority develops expertise in this area, with a view to opening up discussion in due course’ (Social Investment Task Force, 2000) Hardly any detail of the reason for this recommendation is given in the report
itself. However, alongside the report, further work on regulation for community
finance was carried out by the New Economics Foundation (NEF) as part of their
research into community development finance in the UK (Collin et al, 2001;
summarised in Joseph Rowntree Foundation, 2001). Some of this was carried
out in conjunction with others such as Christophe Guene at INAISE (International
Association of Investors in the Social Economy) and Andy Mullineux at the
University of Birmingham.
As well as looking at appropriate regulation for CDFIs, the work also looked at
exclusion from financial services, which was the subject of a book (Guene and
Mayo, 2001). This included possible changes to regulation of banks such as a
European version of the US Community Reinvestment Act, which was seen as
Regulation or Self-Regulation for UK CDFIs – Stuart Field 17
desirable (Conaty, 2001) but unlikely to happen in practice (Mullineux, 2000).
International experience of regulating similar organisations was the subject of
another report (Fisher et al, 2000) with a paper on the US situation by Bush
(2000) and a paper by Guene (2000) on the regulatory situation in the EU. As
with Douthwaite (1996) and Lynch (1997), Guene's paper describes regulatory
obstacles faced by small social finance organisations, such as those I was
involved in at the time. Indeed, I made a small contribution by notifying Guene of
the case of Grether Ost in Freiburg, Germany, which I had come across as a
result of my work, reproduced in Appendix B (Field, 1999b). Guene's
recommendations on the dangers of over-regulation match the recommendation
of the Social Investment Task Force (2000) quoted above. The subsequent
detailed study of Reifner (2003) on regulations in different European countries,
and subsequent developments such as those reported by Johanisova (2005),
Bradley (2005) and Briault (2006), suggest that the warning against over-
regulation has been heeded more in the UK than in other EU countries such as
Belgium, the Czech Republic and Germany.
Alongside the studies on exclusion from financial services and international
experience, Mayo and Mullineux produced a briefing paper on the existing
regulatory framework for social investment (Mayo and Mullineux, 2000) followed
by a report discussing the situation in more detail and making recommendations
Regulation or Self-Regulation for UK CDFIs – Stuart Field 18
(Mayo and Mullineux, 2001a). A modified version of this report was also
published as a paper in an academic journal (Mayo and Mullineux, 2001b).
The report pays considerable attention to issues of regulation of CDFIs using
private investment, (which only some CDFIs do) and less attention to regulation
of the provision of finance, even though this is the core business of all CDFIs.
This followed concerns about forced closure of some CDFIs using private
investment if the regulations proposed by HM Treasury (1999) had come into
effect (Mayo and Mullineux, 2001b, p.116). The report characterised the
regulatory system at the time as 'functional', with CDFIs regulated according to
their functions (e.g. consumer credit) rather than for being a CDFI. As a result
there were no CDFI-specific regulations or self-regulatory systems in the UK (as
for credit unions, for example). This led to 'benign neglect' (Mayo and Mullinex,
2001b, p.115), with CDFIs operating 'below the radar' (ibid., p117) as far as
regulators were concerned. The expansion of the sector with government funding
following the Social Investment Task Force report (2000) suggested that “benign
neglect” was over, but like other reports warned against over-regulation. For the
future, it recommended self-regulation for smaller CDFIs, and more flexibility for
larger ones to become banks if they wanted.
3. Performance Framework: first self-regulation proposals
Regulation or Self-Regulation for UK CDFIs – Stuart Field 19
To complement this, recommendations were made on implementing self-
regulation for CDFIs in the UK. Sattar et al. (2001) argued that CDFIs must
develop their own performance and accountability framework for two reasons.
Firstly, policy makers may otherwise confuse them with poorly performing soft
loan funds and conclude that they are not worth supporting. Secondly, the
government may otherwise impose its own performance and accountability
framework which they believe: ‘is unlikely to meet the diverse needs of CDFIs or
draw sufficiently on the extensive practical experience within the sector’ (Sattar et
al, 2001, p.2)
The performance framework proposed formed part of the basis of the
assessments I carry out on CDFIs – it was later modified by substituting a more
generalised, structured model of impact assessment and supplemented by
further criteria covering business practice and corporate governance. It is notable
that unlike Mayo and Mullineux (2001a, 2001b) the focus of this self-regulatory
regime is primarily on reporting to funding agencies rather than private investors.
4. Bank of England study
Following the Social Investment Task Force (2000) report, a further study of
CDFIs was carried out by the Bank of England (Bank of England, 2002).
Although this study did not focus on regulation, since it was about access to
Regulation or Self-Regulation for UK CDFIs – Stuart Field 20
finance for small firms, it paid some attention to the issue of whether CDFIs could
become financially sustainable. The report was generally more sceptical of the
ability for CDFIs to become financially sustainable than other reports of the time,
such as the Social Investment Task force (2000) report. These predictions were
borne out by later NEF studies such as Brown and Nissan (2007), Thiel and
Nissan (2008) and Thiel (2008).
The study also looked at access to bank finance for small businesses in deprived
areas, which appeared to be declining relative to the rest of Britain. This in turn
was used to provide another argument for government funding and tax credits to
support CDFI lending in deprived areas. This generally positive approach from a
well-respected organisation that used to regulate banks was welcomed.
5. Community Investment Tax Relief
As well as providing funding to expand CDFIs, the government also introduced
Community Investment Tax Relief (CITR). This allowed an investor to offset 5%
of their investment against tax per year for a 5-year period. In order to get this tax
relief, an organisation had to be “accredited” with the Small Business Service as
a CDFI. This involves submitting a business plan for approval, which was an
unusual approach amongst tax relief schemes; indeed, it is reminiscent of the
approach of a regulator (for example, credit unions typically have to submit
Regulation or Self-Regulation for UK CDFIs – Stuart Field 21
business plans to the FSA as part of their regulatory regime).
It also involves meeting targets for the proportion of CITR funds to be lent out
each year, and my professional experience suggests that these targets can be
hard for CDFIs to meet. This is partly because only loans to businesses located
in disadvantaged areas or meeting other specific criteria qualify towards the
target (BIS, 2008). Also, if a CDFI has public or European funding as well as
CITR, for which it has to meet other targets or face losing its funding altogether,
then it may be forced to prioritise these targets over its CITR targets.
6. Financial Services Authority and Code of Practice
As noted above, the proposed self-regulatory regime for CDFIs that eventually
became the performance framework that I use to assess CDFIs focuses primarily
on indicators of interest to funding agencies. The framework is not really aimed at
private investors; indeed, many CDFIs do not have private investors.
In 2005, the FSA said it was 'considering the case for introducing a proportionate
regulatory regime for CDFIs inviting retail investment' (Bradley, 2005). However,
a year later, it reported that in conjunction with the CDFA it was 'developing a
code of practice for this sector as an alternative to more formal FSA regulation'
(Briault, 2006). The FSA provided details of its thinking to an EU expert report
Regulation or Self-Regulation for UK CDFIs – Stuart Field 22
(European Commission, 2007, p. 18) together with 'protection rules' for CDFIs
choosing the legal structure of an Industrial and Provident Society (ibid., pp.67-
68). This Code of Practice, which has since been developed, includes a
substantial section on governance as well as a range of practice issues, of which
raising investment is only a small part.
The Code of Practice links to the other self-regulatory tool, the Change Matters
performance framework, by insisting it should be followed when reporting to the
board, (Community Development Finance Association, 2009) but does not yet
require external assessments such as those I carry out.
Agreeing to the Code of Practice is now compulsory for a CDFI wishing to
become a member of the CDFA, even if the CDFI does not have any private
investors. On the other hand, not all CDFIs are CDFA members, so this does not
provide a complete industry-wide self-regulatory system.
III. Lessons that could be learned from failures
Having examined the body of knowledge that led to the self-regulatory approach
via the CDFA Code of Practice and the Change Matters performance framework,
it is worth examining if any lessons can be learned from the failure of financial
institutions.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 23
Plenty of examples of such failures can be seen since 2007 as a result – and in
some cases as a cause – of the banking crisis. The highest-profile cases in the
UK were major banks which were either fully nationalised, such as Northern
Rock, or where the government bought a large share, such as Royal Bank of
Scotland and Lloyds Banking Group. These cases have little direct relevance to
CDFIs, which are tiny by comparison.
However, there are two cases amongst the significant number of smaller
institutions that also failed which seem more relevant because of their structure
and the way that they generated news and debate out of proportion to their size.
1. Ethnic Mutual
Ethnic Mutual was a London-based CDFI that was de-registered by the FSA in
2008 amid allegations of misuse of funds. The allegation reported in the press
(Gilligan, 2008) concerned a loan of £18,000 to a failing company of which Lee
Jasper was a director. This attracted political attention as Jasper was a senior
aide to London mayor Ken Livingstone, and the scandal affected Livingstone's
re-election campaign.
A director of Ethnic Mutual's parent body EBDC was also a director of the failing
Regulation or Self-Regulation for UK CDFIs – Stuart Field 24
company alongside Jasper. The loan to the company therefore represented a
conflict of interest. Although this loan represented less than 2% of the total
funding of over £1 million received by Ethnic Mutual, concerns about this and
other issues led to a police raid and investigation (Gilligan, 2008). The FSA
subsequently suspended (Financial Services Authority, 2008a) and then
cancelled the registration of Ethnic Mutual, because:
‘Ethnic Mutual had been unable to satisfy us that it was operating for the benefit of the community, which was a condition of its registration’ (Financial Services Authority, 2008b). In the CDFA's 2007 annual review (Community Development Finance
Association, 2007) EBDC - Ethnic Mutual were listed as associate members,
which unlike full members do not have to meet the CDFA's Code of Practice.
Thiel and Nissan (2008) said it was likely that the Ethnic Mutual investigation
influenced the London Development Agency to put on hold the disbursement of
the remainder of the Phoenix Fund to other CDFIs in the region, while other
regional development agencies were distributing this fund. This illustrates the
wider impact a high-profile case such as this can have on funders.
2. Presbyterian Mutual
The Presbyterian Mutual Society (PMS) was not a CDFI, but a unique mutual
savings and loans society in Northern Ireland linked to the Presbyterian Church.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 25
It had assets of £309 million as at 31 March 2008 but was put into administration
on 17 November 2008 after a run on withdrawals (House of Commons Treasury
Committee, 2010).
The FSA investigated PMS and found that it was 'conducting regulated activities
without the necessary authorisation or exemption' but decided that it would 'not
be right' to take legal action against any of those involved in running PMS
(Financial Services Authority, 2009). Although a third of PMS's money came from
withdrawable shares, the remaining two-thirds comprised loans from members
repayable on notice, i.e. deposits, without PMS holding any authorisation for
deposit-taking. In layman's terms, an unlicensed bank with over £300 million in
assets – five times as big as one of the UK's social banks – had been operating
without being noticed by the FSA or other authorities.
As PMS was an Industrial and Provident Society (IPS) and issued withdrawable
shares like many CDFIs and co-operatives, this highlighted regulatory issues
concerning these shares, since PMS could have operated quite legally if it had
stuck to issuing withdrawable shares yet still be vulnerable to a run on
withdrawals. As a result, the Treasury is considering changing the law to make it
compulsory for IPSs issuing withdrawable shares to abide by a Code of Practice
(HM Treasury, 2009c, p. 161) or introducing full FSA regulation for organisations
that 'accept deposits in the form of withdrawable share capital' (HM Treasury,
Regulation or Self-Regulation for UK CDFIs – Stuart Field 26
2010b, p.45).
Part of the problem was specific to Northern Ireland where IPSs are registered
locally by the Department of Enterprise, Trade and Investment. In the rest of the
UK, they are registered by the FSA which scrutinises rules to check if they need
to be regulated under the Financial Services and Markets Act even though there
is no statutory obligation on the FSA Mutuals Registrar to do so, according to
evidence given to the House of Commons Treasury Committee (2010).
3. Lessons from these cases
The Ethnic Mutual story shows that self-regulation has no chance to be effective
if a CDFI opts out of it. However, compelling CDFIs to join would be difficult as
there is no clear-cut legal definition of a CDFI. Indeed, it is possible for an
unconventional financial organisation to grow quite large and operate illegally as
a bank yet escape the attention of financial regulators, as the Presbyterian
Mutual story shows. These cases do not indicate if regulation or self-regulation is
most appropriate, but they do highlight the importance of establishing the
boundary between regulation/self-regulation and no regulation.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 27
C. Conclusion
I. Positions on regulation versus self-regulation
1. UK Government's position
Most of the literature suggests that UK government agencies tended to support a
self-regulatory approach for CDFIs (Briault, 2006) combined with what Mayo and
Mullineux (2001b, p.112) termed 'functional regulation' where they offer services
such as consumer credit which are subject to general regulation. The banking
crisis has led to extra regulatory focus on major banks seen as 'too big to fail'
(HM Treasury, 2009c, p.35) rather than small CDFIs.
All the same, concerns about withdrawable share capital, which some CDFIs
use to raise private investment, cropped up in 1999 (HM Treasury, 1999) and
returned in 2009 in the light of the PMS case (HM Treasury, 2009c), and it is not
yet clear if a Code of Practice for withdrawable share capital will become
compulsory or remain voluntary. Indeed, as noted above, the 2010 Budget
suggests that organisations issuing withdrawable share capital as if it were a
bank deposit may require full FSA regulation (HM Treasury, 2010b, p.45).
2. Other positions
The overall theme which crops up time and time again in the literature is a
Regulation or Self-Regulation for UK CDFIs – Stuart Field 28
warning against over-regulation of CDFIs. This warning has changed little since
the case was put eloquently by Guene (2000) and illustrated with examples of
over-regulation by Douthwaite (1996). Subsequent failures such as Ethnic Mutual
and Presbyterian Mutual led to calls for additional regulation, but both these
cases were linked to failure to implement existing regulation and self-regulation.
The CDFA continues to promote its self-regulatory approach including external
Change Matters assessments of CDFIs such as those I carry out (Community
Development Finance Association, 2010). The Bank of England has also been
positive about CDFIs (Bank of England, 2002). Despite its historical regulatory
role, the Bank's report focused more on the issue of whether CDFIs should be
financially sustainable or need ongoing public funding rather than the regulatory
issues. And finally, it is important not to lose sight of the European context, as
Lynch (1997), Guene (2000) and Reifner (2003) pointed out. This was confirmed
by the report of the European Commission (2007).
II. Final observations
My recommendation from this review would be that when new regulations are
proposed, it is important to look at the historical and international perspective and
avoid too hasty a reaction to highly publicised failures of specific financial
institutions.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 29
Reviewing the body of knowledge around regulation of CDFIs in the UK has
thrown light on the history behind the current mix of regulation and self-regulation
for CDFIs. My research has largely confirmed my own ideas on the dangers of
over-regulation of small organisations, which I am now in a better position to
back up with references to others' work. Carrying out the research helped me
structure my thoughts and make more sense of my experience in the CDFI
sector since 1992. I hope this report will be useful for my future work in the
sector, and help inform the debate on the regulation of CDFIs.
D. References
Bank of England (2002) Finance for Small Firms – A Ninth Report. Bank of England Domestic Finance Division, London, April 2002. Available online at http://www.bankofengland.co.uk/publications/financeforsmallfirms/fin4sm09.pdf accessed 17 March 2010. BIS (2008) Community Investment Tax Relief: Material Concerning the Accreditation of Community Development Finance Institutions, published by the Secretary of State for Trade and Industry, 15 January 2003 and revised on 11 March 2008. Available online at http://www.berr.gov.uk/Policies/enterprise-and-business-support/access-to-finance/community-investment-tax-relief, accessed 19 March 2009. Bradley, Anna (2005) Launch of Fair Finance, a Community Development Finance Institution (CDFI). Speech by Anna Bradley of the Financial Services Authority, 6 April 2005. Transcript available online at http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2005/sp243.shtml accessed 19 March 2010. Briault, Clive (2006) Progress of Community Development Financial Institutions Speech by Clive Briault, Managing Director of Retail Markets at the Financial Services Authority, 19 September 2006. Transcript available online at
Regulation or Self-Regulation for UK CDFIs – Stuart Field 30
http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2006/0919_cb.shtml , accessed 19 March 2010. Brown, Jessica and Nissan, Sargon (2007) Reconsidering UK community development finance. New Economics Foundation, London, 2007. Bush, Malcolm (2000) The regulation and monitoring of community development financial institutions in North America, in Fisher, Thomas et al, Regulating micro-finance: a global perspective. New Economics Foundation, London, 2000. Charity Commission (2002) Decision of the Charity Commissioners to register The Charity Bank Limited as a charity, April 2002. Online, http://www.charity-commission.gov.uk/Library/registration/pdfs/charitybankdecision.pdf, accessed 15 March 2010. Collin, Sam et al. (2001) The state of community development finance 2001. New Economics Foundation, London, 2001. Community Development Finance Association (2007) Annual Review, London, 2007. Available online at http://www.cdfa.org.uk/documents/AnnualReview07-Final_000.pdf, accessed 20 March 2009. Community Development Finance Association (2009) The cdfa Code of Practice (2009 version), London, 2009. Also available online at http://www.cdfa.org.uk/documents/CodeofPractice2009-FINAL_000.pdf, accessed 19 March 2009. Community Development Finance Association (2010) Change Matters: The CDFI performance framework. Online, http://www.cdfa.org.uk/cmframe.php?prmid=4820, accessed 5 March 2010. Conaty, Pat (2001) Community reinvestment partnerships: financial intermediation and local economy regeneration, in Guene and Mayo (2001), Banking and Social Cohesion: alternative responses to a global market, Jon Carpenter, Charlbury, 2001. Currie, Carolyn (2003) Towards a theory of financial regulation: predicting, measuring and preventing financial crises. University of Technology Sydney School of Finance and Economics Working Paper no. 132, October 2003. Douthwaite, Richard (1996) Short Circuit: strengthening local economies for security in an unstable world. Green Books, Dartington, 1996. Also available online with 2002 updates on the website www.feasta.org
Regulation or Self-Regulation for UK CDFIs – Stuart Field 31
European Commission (2007) The regulation of microcredit in Europe. Expert Group Report, April 2007. Giotis, Chrisanthi (2009) Social enterprise lenders feel the strain of credit crunch. Social Enterprise magazine, Online edition, http://www.socialenterpriselive.com/section/news/social-enterprise-lenders-feel-the-strain-credit-crunch, accessed 27 August 2009. Field, Stuart (1999a) Letter to HM Treasury in response to consultation document on Banking Act exemption for Industrial and Provident Societies, 5th August 1999 (Reproduced here in Appendix A.) Field, Stuart (1999b) Ecological project in Germany publicises the actions of banking regulators. Unpublished paper, 1999 (Reproduced here in Appendix B). Financial Services Authority (2008a) Warning – Ethnic Mutual Limited FSA Statement, 14 March 2008. Available online at http://www.moneymadeclear.fsa.gov.uk/news/firm/2008_archive/ethnic_mutual.html, accessed 20 March 2010 Financial Services Authority (2008b) 'Update – Ethnic Mutual Limited' FSA Statement, 14 March 2008. Available online at http://www.moneymadeclear.fsa.gov.uk/news/firm/2008_archive/ethnic_mutual2.html, accessed 20 March 2010 Financial Services Authority (2009) Presbyterian Mutual Society. FSA Statement, 9 April 2009. Available online at http://www.fsa.gov.uk/pages/Library/Communication/Statements/2009/presbyterian.shtml, accessed 20 March 2009. Fisher, Thomas et al (2000) Regulating micro-finance: a global perspective. New Economics Foundation, London, 2000. Guene, Christophe (2000) Freedom to smallness? Living within the legal framework for social and micro-finance in the EU, in Fisher, Thomas et al Regulating micro-finance: a global perspective. New Economics Foundation, London, 2000. Guene, Christophe and Mayo, Ed (eds.) (2001) Banking and Social Cohesion: alternative responses to a global market. Jon Carpenter, Charlbury, 2001. HM Treasury (1999) Proposed changes to the Banking Act exemption for withdrawable share capital for Industrial and Provident Societies, Consultation document, London, May 1999.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 32
HM Treasury (2009a) Financial services. Online, http://www.hm-treasury.gov.uk/fin_index.htm, accessed 31 August 2009. HM Treasury (2009b) Proposals for a Legislative Reform Order for Credit Unions and Industrial & Provident Societies in Great Britain, 14 April 2009. Online, http://www.hm-treasury.gov.uk/consult_credit_union.htm, accessed 5 March 2010. HM Treasury (2009c) Reforming Financial Markets. The Stationery Office, London, July 2009. HM Treasury (2010a) The Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2010 Revised draft, 8 March 2010. Online, http://www.hm-treasury.gov.uk/consult_credit_union.htm, accessed 18 March 2010. HM Treasury (2010b) Budget 2010: Securing the recovery. Economic and Fiscal Strategy Report and Financial Statement and Budget Report. The Stationery Office, London, 24 March 2010. House of Commons Treasury Committee (2010) The failure of the Presbyterian Mutual Society. Sixth Report of Session 2009-2010. The Stationery Office, London, 9 February 2010. Johanisova, Nadia (2005) Living in the Cracks. Feasta, Dublin, 2005. Partly available online at www.feasta.org Joseph Rowntree Foundation (2001) Promoting the growth of the community development finance sector, Findings 731, July 2001. Lynch, Malcolm (1997) Legal Regulation of Social Economy Finance Organisations, in Financial Instruments of the Social Economy in Europe and their impact on job creation, INAISE, Brussels 1997 Mayo, Ed and Mullineux, Andy (2000), Regulation of social investment. Briefing paper, New Economics Foundation, London, August 2000.
Mayo, Ed and Mullineux, Andy (2001a) Bootstraps or braces? The regulation of community development finance institutions, New Economics Foundation, 2001. Available online: http://www.neweconomics.org/publications/bootstraps-or-braces accessed 18 March 2010.
Mayo, Ed and Mullineux, Andy (2001b) A Regulatory Framework for Community
Regulation or Self-Regulation for UK CDFIs – Stuart Field 33
Development Financial Institutions. Journal of Financial Regulation and Compliance, 9(2), June 2001, pp 111 - 123
Mullineux, Andy (2000) Re-Regulating Banks: The Unfinished Agenda. Journal of Financial Regulation and Compliance, February 2000, 8(1), pp 9-15. Also published in Guene and Mayo (2001), op. cit., pp 235-241. Office of Fair Trading (2008) Do you need a credit licence? Information booklet, July 2008. Available online at http://www.oft.gov.uk/shared_oft/business_leaflets/credit_licences/oft147.pdf, accessed 31 August 2009. Reifner, Udo (2003) Micro-lending: a case for regulation. IFF, Hamburg, 2003. Sattar, Danyal et al. (2001) A Proposed Performance and Accountability Framework for Community Development Finance in the UK Online, http://www.neweconomics.org/publications/a-proposed-performance-and-accountability-framework-for-community-development-finance-i , accessed 18 March 2010 Social Investment Task Force (2000) Enterprising Communities: Wealth Beyond Welfare. UK Social Investment Forum, London, 2000. Thiel, Veronika (2008) Credit with a social mission: why aligning the UK with the European microfinance movement matters. New Economics Foundation, London, December 2008. Thiel, Veronika and Nissan, Sargon (2008) UK CDFIs – from surviving to thriving: realising the potential of community development finance. New Economics Foundation, London, August 2008.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 34
E. Appendices
I. Appendix A: my 1999 Treasury consultation response
Mrs. Zubeda Esmail
Room 42A/G
HM Treasury
Parliament Street
LONDON SW1P 5AG
5th August 1999
Dear Mrs. Esmail,
Response to consultation document on Banking Act exemption for Industrial and
Provident Societies
Here is my response to the questions in the above consultation document, based
on my experience in working within the co-operative movement since 1987 and
social finance since 1992:
Whether the code of practice cover the important areas
There is a problem with the statement "this is risk capital, and that members may
not get their money back, or may get less than they paid in". Investments made
under this condition appear to fall outside the definition of deposit in the Banking
Act as quoted in the consultation document: "money paid on terms... under which
it will be repaid..." and therefore would not need to be covered by an exemption
from the Banking Act. In other words, the proposed change appears to mean
"deposits in the form of withdrawable share capital are exempt from the Banking
Regulation or Self-Regulation for UK CDFIs – Stuart Field 35
Act if they are risk capital, i.e. not deposits at all" which is a tautology. Under the
proposals:
Money invested in the form of withdrawable share capital is either a deposit or
risk capital; it cannot be both.
If the money is risk capital, the exemption does not apply, and the code of
practice is not required by law.
If the money is a deposit, it is not risk capital, so the code of practice cannot be
complied with.
In the latter case, the Industrial and Provident Societies Acts already
make it clear that a society with withdrawable share capital may not carry
out the business of banking.
If the aim of the change is to regulate the issue of withdrawable share capital,
this should be done by amending the Industrial and Provident Societies Acts
rather than the Banking Act.
Timing, administrative burden and cost
The main burden will in most cases be the re-design of publicity material and the
destruction of previous publicity material. Staff will also need to be instructed on
the new procedures for dealing with applications for investment. Clearly both of
these are one-off costs, and will be higher if regulations are introduced or
changed at short notice. This should be borne in mind when planning the timing
of any changes.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 36
The main timing problem I foresee is if a society decides to make changes to its
registered rules as a result of the changes. In recent years the Registry of
Friendly Societies has been rather slow at processing applications for rule
changes, and the transfer of responsibilities to the Financial Services Authority
does not appear to have improved matters. If the proposed rule changes are not
processed in time, this could cause serious problems for some societies.
Yours faithfully
Stuart Field
v.o.f. de Verandering, international social economy consultants
Lauwerecht 55
3515 GN Utrecht
Netherlands
Tel. 0031 30272 1660
Fax 0031 30272 1532
Regulation or Self-Regulation for UK CDFIs – Stuart Field 37
II. Appendix B: my 1999 article on Grether Ost
Ecological project in Germany publicises the actions of banking regulators
One of the greatest hindrances to the growth of social finance in Europe is
banking regulation. Projects in many EU countries have experienced problems
with banking legislation. Whether or not the project bears even the slightest
resemblance to a bank is, in many cases, irrelevant. This is because the banking
legislation in every EU country derives from the Second European Banking Co-
ordination Directive. Many governments have implemented this directive in ways
that give a very broad definition of what constitutes a bank. So broad is this
definition that large numbers of both conventional and social economy
businesses can fall within it when they raise investment to finance their
operations. As a result, a directive that was intended to regulate banks and other
credit institutions has had the unintended effect of hampering the ordinary
business activities of small and medium sized enterprises throughout Europe.
Study after study has shown that small and medium sized enterprises create
most of the new jobs in the EU. This has been recognised by the European
Commissioner, Mario Monti, who has called for the obstacles to obtaining
finance experienced by small and medium sized businesses to be identified and,
where possible, removed.
Why, then, has there not been much publicity of this problem? The banking
system relies on strict secrecy for its proper operation, and banking regulators
therefore do their utmost to keep secret the actions they take against
organisations that they suspect of infringing banking legislation. The
organisations are usually happy to comply with this, since they do not want to
alarm their investors unnecessarily. The net result is that the activities of the
Regulation or Self-Regulation for UK CDFIs – Stuart Field 38
banking regulators are hardly ever reported in the media.
In one recent case in Germany, however, this wall of secrecy has been broken
down. The Grether Ost project in Freiburg (1) is a project to convert part of a
former iron foundry into a mixed housing and workspace, using ecological
building techniques where possible. In order to make sure that the rents were
affordable, the project obtained loans totalling about 3 million marks from its
supporters. These loans were secured by a collective mortgage over the
property, since this is cheaper than making individual private mortgages for each
investor. Loans secured by mortgages are not normally considered deposits in
Germany, but the German banking regulators decided to take action against the
project on the technicality that a collective mortgage was used rather than a
series of individual private mortgages. The fact that the project merely sought to
finance itself, and has no pretensions to be a bank, was considered irrelevant.
The project received a letter demanding that it be prepared to liquidate itself
immediately.
The project's response was twofold. As well as contacting a lawyer in the normal
way, they sent out a press release, which was taken up by the German press
and TV. The story was clear: why should an ecological project with no
pretensions to be a bank be threatened with immediate closure because of an
obscure technicality in banking legislation? This was clearly a public relations
disaster for the regulatory authority, especially given the Red-Green coalition's
declared support for social and ecological projects.
Meanwhile in Britain, new legislation is being proposed that would further tighten
up banking regulation (2). Again, it is "social economy" projects which will be
largely affected, and again, the vast majority of organisations that will be affected
Regulation or Self-Regulation for UK CDFIs – Stuart Field 39
have no pretension whatsoever to be banks. The projects most affected are
members of the co-operative movement, some of whom had ironically made
substantial contributions to Labour's election fund.
Single Market?
The idea of the European single market was to harmonise trade across Europe,
ensuring that businesses in each EU country were treated equally, and giving
investors the freedom to invest in European businesses. In both of these aims,
banking legislation has failed dismally. National differences in implementation of
the banking directives mean that small businesses, social and ecological projects
in, say, France or the Netherlands are subject to significantly different regulations
from those in, say, Germany or the UK. A group of more than five investors
would be prevented from investing directly in a small business in Germany,
whereas if the same group of investors wanted to invest in a Dutch business
there would be no such restriction. In Germany, the group would probably be
forced to use a bank as an intermediary, adding to costs and detracting from the
project's viability.
Investing in the social economy is a particular problem. In response to social
problems such as unemployment, poverty, crime and homelessness, there has
been an increase in activity by charities, co-operatives, and associations, which
together form the "social economy". These organisations find it particularly hard
to raise investment finance, even when they have property to offer as security,
because very few banks understand how the viability of these organisations can
be measured since they do not trade primarily for profit. However, there are quite
a lot of people - "social investors" - who would like to help and are prepared to
accept less than market returns, and higher than normal risk, in order to support
Regulation or Self-Regulation for UK CDFIs – Stuart Field 40
the aims of social projects. Their efforts are now being hampered by Europe's
banking legislation, even though the projects are certainly not banks. In several
European countries some of these organisations are exempt from banking
regulation, but the exemptions are arbitrary and vary substantially from country to
country.
Why are there such differences from country to country, in what was supposed to
be a single European market? One reason is that European laws were built on
top of national laws and constitutions, which vary from country to country. In the
Netherlands, for example, the principle of « défense de détournement de pouvoir
» (prevention of abuse of power) prevents a law being used for a purpose other
than that for which it was designed. So, for example, a law for supervision of
credit institutions could not be used in the Netherlands to regulate the raising of
investment by organisations (such as Grether Ost) which are merely raising
finance for their own project and are therefore not credit institutions.
Conclusions
Banking regulation is important, because a bank collapse robs people of their
savings, and reduces confidence in the economy as a whole. Banks also play a
crucial role in the regulation of money supply. However, European legislation
needs to be refined so that banking regulators should confine their activities to
banks and other credit institutions, rather than taking action against projects
which have no pretension whatsoever to be banks. Indeed, in some countries
such as the Netherlands it is likely that banking regulators would not be allowed
to act in this way. Projects in countries where banking regulators have wider
powers of regulation are therefore at a disadvantage, and will remain so unless
this inconsistency within European legislation is removed.
Regulation or Self-Regulation for UK CDFIs – Stuart Field 41
Stuart Field
References [as quoted by my original 1999 article; reference 2 is equivalent to
the reference (HM Treasury, 1999) quoted in the main text]
1.See web site http://www.syndikat.org (in German)
2.See web site http://www.hm-treasury.gov.uk