Official Report: Minutes of Evidence

The Chairperson (Mr O'Toole): We welcome the officials to give us the update. We have Wendy Lecky, director of strategic policy division; Julianne Kieran, principal economist in the strategic policy division; and Dylan McDonnell, deputy principal economist. You are all very welcome; thank you for coming. Wendy, give us an opening statement. Members should indicate if they wish to ask a question. We are grateful that you have come to the Committee, because this has been an important priority for us, and we want to ensure that there is follow-through on the recommendations.

Ms Wendy Lecky (Department of Finance): Thank you, Chair, Deputy Chair and Committee members, for the opportunity to discuss the Department's work in relation to banking. As you pointed out, Chair, I have with me Julianne and Dylan, who support the Department's work on access to cash. We are all fully aware that banking is a reserved matter. As I am sure that you all agree, however, that does not mean that we should leave all the delivery and action to those in London with the responsibility for regulation and legislation on banking. It is hugely important that those with that responsibility — the Treasury, the Financial Conduct Authority (FCA) and the banks themselves — are aware of our circumstances and issues.

The role that the Finance Minister and my team have in this area involves, first, engagement — providing stakeholders with a platform to raise issues — and, secondly, pressing those who make the decisions for accountability and solutions to those issues. That has become more important than ever. You are all aware that the banking sector is evolving, with the continuing closure of traditional brick-and-mortar bank branches and a move towards online banking services. Although that digital shift is welcomed by many, it presents issues to many citizens who still require access to in-person advice and services. The closure of bank branches has a disproportionate impact on certain groups, such as older people and those with limited digital skills. It also has an impact on our rural and cross-border communities, and charities have particular issues, of which the Committee is aware. It is important that those groups are represented and have a voice. The key vehicle for that, in DOF, is the Minister's banking round table, and the most recent one was held on 3 December last year.

As the Committee will have seen, some of the issues in the report that was published this month align closely with those that the Committee identified in its inquiry. On the day of its publication, the Minister shared that report with the Chief Secretary to the Treasury and the chief executive of the Financial Conduct Authority with a number of asks, including, in particular, full transparency on the decisions around the cash access assessments and a review of the data and the criteria that they use for Northern Ireland. He also asked for further protections of other banking services, rather than just access to cash, and what plans Treasury has to protect the use of cash as we see being rolled out in other countries. We await a response on those, but we recognise, as the Committee does, that actions can be taken locally, particularly around financial and digital inclusion. Members will have seen the update, in the paper that we provided, that this is a cross-cutting issue: it is not just a DOF issue but an area on which we in DOF are proactively engaging with other Departments. For example, we are in the process of setting up a cross-departmental working group with DFC to look at financial inclusion. As the Committee will appreciate from its inquiry, that is a key issue for stakeholders. We were very disappointed to see that the UK-level financial inclusion strategy did not sufficiently reflect our local circumstances. In fact, it did not reflect many at all.

In addition, we work in partnership with Libraries NI and Supporting Communities NI in this area. DOF's digital inclusion unit delivers workshops in local libraries, community centres and hubs in order to help individuals to build digital skills and to improve financial inclusion. As part of its inquiry, the Committee engaged with Millisle Community Association. We have also engaged with Millisle Community Association, given its involvement in the community access to cash pilots. It was invited to all three banking round table events. We met it again last November, following the Committee's inquiry, to explore further lessons that can be learnt, particularly around financial education.

A number of the recommendations from the Committee's inquiry relate to community-based lending and making use of dormant assets and financial transactions capital (FTC). We have provided updates on those in our report for today. We share the Committee's concerns around the increasing cost of insurance premiums. We have been engaging with the industry on that as well to understand the main factors behind those so that they can be considered by the relevant Departments. Again, that it is a cross-cutting issue, but also by the right administration. We have been pushing the industry as well for better data, particularly so that we can benchmark ourselves against Great Britain.

There are more detailed updates in the paper that was provided on your recommendations, and we are happy to take any questions that you may have.

The Chairperson (Mr O'Toole): Thank you very much. I think, first of all, that it is welcome that the banking round tables will continue and that the Department accepts the Committee's view, which was in a sense the purpose of the inquiry. One of the biggest outcomes of the inquiry is that we need to shout about our needs here, because the Treasury and the FCA are simply not aware of them. It is not necessarily a sin of commission: they may be cynical in relation to public spending but they are just, in many cases, blissfully unaware of our specific needs, whether that is rurality, frontier workers and cross-border issues, or access-to-cash issues. We might as well be on the moon, basically, on some of those issues.

My first question is this: has there been a step change, post our inquiry and the existence of the banking round tables, in actually making that voice heard and demanding a bit more input from the Department to the relevant bodies in London, whether it is the Treasury, the FCA, the Prudential Regulation Authority (PRA), or the commercial banks themselves?

Ms Lecky: The relationship that we have with the FCA is reasonably good. There is now a local representation here in Northern Ireland, and we meet with it regularly. The FCA attended our last two banking round table events, and that engagement just does not happen there. For example, last year, when it was launching its new five-year strategy, the FCA had an event in Belfast. The Minister attended that and gave a keynote speech. I also went across in October. The FCA was holding a Chatham House rules forum, bringing together stakeholders to see how the access-to-cash rules have been implemented. I would say that it is good on the FCA part. On the Treasury part, unfortunately, I would say that it is not as successful. We share the reports with Treasury and, as far as I am aware, we did not get a response to the one last year.

The Chairperson (Mr O'Toole): When you say that you did not get a response, did Treasury acknowledge that you had sent it, or did it just not acknowledge the report? Was it just like sending an email to info@ and it was just ignored? I am sure that you sent it to a named person, but your —.

Ms Lecky: We sent it to the Chief Secretary to the Treasury (CST). The Minister writes to the CST and shares the report, and we set out within that a number of asks or things that the CST should consider. We did not get a response to that last year. We did the same again when we published our report this year and, as I said in my opening remarks, we await a response on that.

The Chairperson (Mr O'Toole): Was it definitely to the CST? Is that the right person to send it to? There is no excuse for them not responding, but —.

Ms Julianne Kieran (Department of Finance): He is responsible for the legislation that the FCA then manages and regulates. We filter our queries of what we are raising or highlighting through the letters, so it is things specific to the Treasury that we raise.

Ms Lecky: We know that they get our correspondence because of our engagement with Treasury officials, who have also been invited to —.

The Chairperson (Mr O'Toole): Did you ask for a read receipt of the email that they then did not respond to? I am not being flippant, but it sounds like that is pretty contemptuous.

Ms Lecky: Well, the officials are aware that the Minister has written to the CST. They are aware of the content of the letter, but they have not responded.

The Chairperson (Mr O'Toole): Just on a few specific things, then, that is frustrating. It might be for our Committee to think about ways in which we could escalate and make clear that our voice can be heard too.

On some of the specific issues and recommendations raised by our inquiry, one of the things that came up was — you mentioned it in your opening statement — the Financial Inclusion Committee and strategy and the lack of a Northern Ireland presence on it. When you have asked about that, has the answer been, "Talk to the hand; not interested"?

Ms Lecky: No response, really. Our Minister and a couple of other Ministers from here wrote to ask for representation on the Financial Inclusion Committee. One representative of Northern Ireland, the Consumer Council, was on a subcommittee around access to credit, but we did not have a representative on the main committee. DFC was the lead from here for engagement on that, and going back —.

The Chairperson (Mr O'Toole): Does "engagement" mean responding to the consultation on the financial inclusion strategy?

Ms Lecky: Not even responding; just liaising with Treasury officials as they took the financial inclusion strategy forward.

Ms Kieran: Representation on committees was raised in letters last year and this year.

The Chairperson (Mr O'Toole): OK. Sorry: say that again, Julianne.

Ms Kieran: The need for a Northern Ireland representative on relevant committees, such as the Financial Inclusion Committee, was raised this year and last year.

The Chairperson (Mr O'Toole): You mean devolved officials. I presume that their view, although it may not have been articulated, is, "This is reserved, so we're cracking on", or do you not know?

Ms Kieran: We do not know.

Ms Lecky: We do not know, but the fact that the published financial inclusion strategy did not really have anything in it in detail for Northern Ireland makes it clear that they were not interested.

The Chairperson (Mr O'Toole): Yes, definitely. OK. That makes it even more important that we collectively, or else the Executive or representatives here, make our voice heard. There is some talk — I do not know whether it has been confirmed — that what is called the King's Speech, which is fairly soon, might include reference to a financial services Bill. I have heard some reporting that that might be one of the things that might be included. Is there an argument for the Executive taking a position on specific interventions that they want to see? I do not know whether any planning has gone into that.

Ms Lecky: Not that I am aware of.

The Chairperson (Mr O'Toole): OK. Cross-border banking was a theme that came up again and again. It is definitely one of the very particular issues for frontier workers — people who are resident in one jurisdiction on the island and, perhaps, are self-employed, or they work in Dublin and need to get a mortgage in the North or whatever. Did that come up at the banking round table? What specific actions are being taken?

Ms Lecky: One issue that came up at the banking round table was the extent to which the criteria that LINK uses in undertaking its cash access assessments take cross-border transactions into consideration. Take Crossmaglen, for example — the Minister and I were there in January — which unsuccessfully bid for a banking hub in September 2024. When we looked more into the criteria that are used, we saw that, for rural areas such as Crossmaglen, LINK uses a three-mile radius. However, that stops at the border, so, for a town such as that, which is right on the border, the radius is not three miles.

The Chairperson (Mr O'Toole): It is one mile.

Ms Lecky: Our Minister raised that directly with the FCA, asking it to review the criteria that are used for Northern Ireland to see whether they are appropriate and also to be more transparent around those decisions.

The Chairperson (Mr O'Toole): Is there an argument for the Minister or maybe this Committee writing to the banks? We had Bank of Ireland and Allied Irish Banks (AIB), for example, in front of us here. They will say that, post Brexit, there are new challenges. I speak not from personal experience but from close family experience. Trying to get a euro mortgage for a house in Belfast is difficult, despite the fact that there is now a huge number of people living not just in Belfast but in Newry, Banbridge and all that whose day jobs are in Dublin now, as well as people who always traditionally worked on one side of the border. Some of that is about the regulatory, political or legal environment, but some of it is about commercial choices by banks. Is there an argument that the Minister should write to the banks, asking, "What are you doing to make it easier for your customers who operate on a cross-border basis?" — and even to the Irish Government or regulators in the Republic?

Ms Lecky: We deal directly mostly with UK Finance, which is the representative body. That is certainly something that we can pick up directly with it, if you think that that would be useful. If you are hearing that there are those issues, we will be happy to take those away and do that.

The Chairperson (Mr O'Toole): That would be useful, because a lot of the member bodies in UK Finance will be perhaps operating differently. Obviously, we know now, because of the loss of passporting rights, that they are organised slightly differently than pre Brexit — certainly the all-Ireland banks, and those are the ones mainly providing these services. The AIBs — not Ulster Bank any more, as we know, but AIB and Bank of Ireland. I do think that that question needs to come forward. We know now that it is not going to come from the Treasury. It may come from the FCA, but it is not going to come from the Treasury. That is a critical question, so thank you for that.

Ms Lecky: The Minister also shared the report with his counterpart in the Republic of Ireland.

The Chairperson (Mr O'Toole): Our report?

Ms Lecky: Our banking report. He asked that his officials link in with us so that we can discuss those sorts of issues. We are waiting to hear back on that, but I appreciate that —.

The Chairperson (Mr O'Toole): Will you keep us posted on that? Is there a counterpart in the Department of Finance in Dublin?

Ms Lecky: Yes.

The Chairperson (Mr O'Toole): It would be helpful to be kept abreast of that, because there is a clear policy gap here with regard to frontier workers and financial services for them. That came out in our report, but we just need to make it clear.

One final question from me is on claims management in relation to higher motor insurance premiums. Do the Department or Executive have a specific position on regulation for claims management companies?

Ms Lecky: Most people are aware that this is regulated across the water, not here. That issue was raised directly with the Minister by the insurance industry. We asked the industry to provide us with the evidence before the Minister can consider to what extent it is an issue. When the motor insurance task force was being taken forward across the water, it asked the industry for the same evidence. We are still waiting on that. The Association of British Insurers (ABI) tells us that it is working on it. We link in with it regularly, and it seems confident that we will get something on that soon. Once we have that data to back up whether it is an issue here and worth legislating for, that is when the Minister will consider it. The Minister is committed to looking at that when it is received.

Miss Hargey: As part of its inquiry, the Committee tried to look at the talk of a mutual bank. Was there a follow-up report? I see that Preston City Council in Lancashire has just invested for the first time in shares in a community mutual bank. It is not yet established. I believe that they are applying for the licence in quarter 3 of this financial year, to be fully operational in 2027. I would be keen to see any learning that comes from that. The council's big focus is to keep any profit gained through transactions, particularly through public procurement, so that it is recycled into the local economy and not extracted.

When you look at the banking system here, which is private firms, up to 80% of the profits of some banks go to shareholders and out of the local economy. There is up to £4 billion of public procurement expenditure here by the Executive. Imagine if all that was banked in a community mutual bank or the type of bank where profit is recycled. If there is learning from that, and that is an approach that we could start to develop, that would be good. I would be keen to see at some point in the future how that pilot in Preston is going and to be updated on it.

Ms Lecky: That was raised with the Department of Finance a few years back. It was left with DFE, which was going to look at funding a feasibility study on a mutual bank in Northern Ireland. I do not know where that got to. That was a couple of years ago now, but we can pick that up with officials.

The Chairperson (Mr O'Toole): Yes. We can ask that or ask it via you.

Mr Kingston: There has been a growth in online banks in recent years. I feel sorry for the banks that were traditionally high street and provided branches. Sadly, those are obviously declining.

The Chairperson (Mr O'Toole): They are still making profits. I would not necessarily feel sorry for them.

Mr Kingston: In fairness to them, I do like to support the banks that have a high street presence —

The Chairperson (Mr O'Toole): And building societies.

Mr Kingston: — that provide somewhere where people can physically meet it. Does government compensate in any way for those banks that are purely online, such as by having them pay some extra dividend towards supporting a physical presence, such as a banking hub? Is anything done to compensate for the fact that those banks are purely online?

Ms Kieran: The challenger banks are not designated as banks by the FCA, so they do not currently pay for banking hubs. It is the banks that you physically see that currently pay. I think that they still have the biggest overall market share in the UK, but I do not know whether there is any —. To do anything like that would be a decision for the FCA.

Mr Kingston: Is there no way of getting extra funding from them, in some form, to support a physical presence such as banking hubs?

Ms Kieran: There are designated banks in the legislation. I think that there are 14 in the UK, and all the high street banks that we see here are in that list. They collectively fund Cash Access UK, which rolls out the banking hubs. No challenger banks are listed as being designated at this time. I do not know whether Treasury has any plans to increase tax or dividends or anything like that. I am not aware of anything like that.

Mr Kingston: Did you say "challenger banks"?

Ms Kieran: Yes. That is another name for those banks that do not have a physical bank presence.

Mr Kingston: OK. I was not aware of that. Thank you.

Mr Harvey: You made a very interesting point about the three-mile radius, Wendy. When you think about it, usually that would be a six-mile circle. That should be looked at. It should still be a six-mile circle, but the centre point should maybe be at the edge. There should maybe be allowance for that. That is very interesting. I never thought of that. Being right on the edge, there is only half the distance. That was a very good point.

Ms Lecky: We have raised that issue with the FCA. Towards the end of the year, the FCA will be doing a review of the roll-out of the access-to-cash rules. If there is no movement on that by then, there will be another opportunity for the Department and, I suppose, the Committee to be part of that review and put forward those sorts of issues.

Mr Harvey: You have identified a couple of towns that fall into that category.

Ms Lecky: Lisnaskea and Crossmaglen are the two areas that we are aware of having applied for a banking hub and been turned down.

Mr Harvey: That is easily rectified. Instead of moving the banking hub to the centre of the town, move it to one edge, and it will still be the same.

The Chairperson (Mr O'Toole): No other members have indicated that they wish to ask a question. I am keen that we hear more on this topic and that the Committee keeps on top of it.

There were several things. Thank you for briefing us. It is welcome that the banking round table still exists. I am keen that the Committee and the Department appreciate the two things that we have all established, which are, number one, that we have very particular needs here — rurality, access to cash, cross-border areas — including, by the way, some of the things that came out about business banking, such as there being a high number of traditional multigenerational family companies. There is a question over whether those companies are served as well as they used to be, or as well as they could be, by business banks.

This has not come up today, but we also have a large community and voluntary sector that faces challenges with getting bank accounts in the first place and then with transitioning bank accounts whenever somebody who is in their 80s or older, who had been the named person on the account since 1970-something or 1980-something, sadly passes on and they need to transition that to another person. All those things exist across the water too, but we have particular exposure to them, so we want to keep on top of it, and we therefore want keep on top of what you guys are doing. If you can send us updates on financial services, further to what we discussed — Members and the Committee Clerk will keep me right if I have forgotten anything. If there are any more legislative developments in London in relation to a Bill including financial services, or any further outworkings of the Financial Inclusion Committee, which I appreciate and acknowledge that you have been trying to get in on, but if any more shouting can be done to be heard on that —.

That was number one. Number two, you mentioned the taking away of cross-border services, whether those are to do with mortgages or even everyday current accounts, particularly for frontier workers and those who are proximate to the border generally. You mentioned cash access and branch access issues in places such as Crossmaglen and Lisnaskea, but there is a broader issue for frontier workers. If the Minister or the Department is going to raise that not only with the Irish Government, as you mentioned, but with the banks themselves to see what they are doing —. To be honest, one thing that we found in our inquiry was that, once we asked them to come here — no offence to them — they had to pull their socks up a wee bit and have some answers ready for us, because they were not used to being asked to come and account for some of the services here, with the exception of the round table. However, they had to do that in public here. Please feel free to attach our report and say that the Committee is going to keep making noise about it too.

Claims management companies and where regulation is on that —. We want to see things coming forward on that. I think that you have asked the ABI for an evidence base. It would be helpful if we could be copied into that or if you could at least give us your analysis of it.

Finally, Deirdre raised the point about mutual banks. I am not trying to send you away too —. I do not want to create loads of work for you, but this is really updating us on existing work. Mutual banks — whether that feasibility study was commissioned and what the outworking of it was. I am not sure where we are with credit unions, which is a related matter. Both of those will go via the Department for the Economy, but it would be most helpful if we were kept updated on all of them, if members are content that we ask the Department for that.

It is also worth our corresponding with the Treasury. I cannot remember, but I presume that we did that at some point.

The Committee Clerk: We did, Chair. We did not get much of a response.

The Chairperson (Mr O'Toole): I do not know whether it is the Chief Secretary to the Treasury or the Minister who is responsible for financial services? It might be the Exchequer Secretary, although some things —.

The Committee Clerk: It might be the CST.

The Chairperson (Mr O'Toole): Well, yes, but that is not always —.

The Committee Clerk: The Treasury is usually good at transferring —.

The Chairperson (Mr O'Toole): Whoever we write to, we can say that, as the Finance Committee, we are concerned about the failure to understand financial services issues that are particular to Northern Ireland. The Minister has established a banking round table, and we dedicated a particular inquiry, but it has proven to be very difficult to get a response and engagement on that — with, to be fair, the partial exception of the FCA, which does engage a bit more. Can you please flag it with them, attach the report, repeat our concerns and ask for a response? It may be worth copying that to either the NI Affairs Committee or the Treasury Select Committee.

The Committee Clerk: It would not hurt to copy it to both.

The Chairperson (Mr O'Toole): I know that there is no NI presence on the Treasury Select Committee, but we could send it to both. We can follow up again in some weeks. We can write that with a bit of pepper, as it were, so that they know that we want a response, if Members are agreed.

Thank you very much.

Ms Lecky: Thank you.