AN INVESTIGATION has been launched into how £3.3m had to be refunded to thousands of savers as a Scottish community bank collapsed two years after auditors cast doubt over its future as a going concern.

It has further emerged that the Barrhead-based Pioneer Mutual Credit Union which fell into insolvency failed to provide annual accounts to financial regulators since 2018.

Under FCA rules, those that do not submit annual accounts can be prosecuted.

It was confirmed that the joint administrators PKF Geoffrey Martin & Co. Limited will be investigating the conduct of the credit union’s board and management, in particular in the period leading up to its insolvency.

It was further revealed that it was the directors of the 28-year-old not-for-profit credit union, rather than a creditor or regulator who petitioned the court to appoint administrators.

Its collapse came despite a £15m Scottish Government support fund which credit unions could take advantage of - including a £2m dedicated fund after the initial lockdown last year. According to officials, the credit union did not receive any money.

The Financial Services Compensation Scheme (FSCS) has meanwhile stepped in to protect its 3,500 members and have said cheques by way of compensation have been sent.

All borrowers will have to pay back loans - thought to run into over £2m.

As of 2018, borrowers included 12 members of the board and their close family members.

The administrators say that borrowers should receive letters from them explaining what is happening imminently.

The credit union was recognised at the Scottish Parliament for its "responsible approach to borrowing" following a motion lodged by the SNP Renfrewshire South MSP Tom Arthur in July, 2018 . It was supported by 11 other SNP MSPs, including the then party chief whip in the Scottish Parliament Bill Kidd and former mental health minister Maureen Watt.

An administrators source told the Herald: "Pioneer Mutual didn’t file accounts for a number of years. As a credit union, they need to file on the Mutuals Public Register, which is their equivalent of Companies House. "I can’t confirm if penalties were levied on Pioneer Mutual. I’m sure, though, that the FCA will have been aware of the multiple breaches and will have been asking questions."

But neither the regulators, the FCA or the Prudential Regulatory Authority would answer in full questions on what it had done in the past to monitor the state of the credit union in the wake of the auditors's alert of 2018.

The credit union's last annual accounts for the year to September, 30, 2018 showed it made a pre-tax loss of £178,904.

And Robert Pollock of Hamilton-based Sharles Audit, the senior statutory auditor raised concerns signed off in July, 2019 over the financial state of the credit union, which provides community loans and savings to those living in the Glasgow, Motherwell and Paisley postcode areas.

The practitioner questioned the adequacy of disclosures over the company's ability to continue operating as a going concern.

The state of a company's capital to asset ratio demonstrates a firm's ability to meet its short-term creditors and the auditor raised concerns that it was at less than 3%.

And he said that indicated the existence of a "material uncertainty which may cast doubt about the company's ability to continue as a going concern".

According to notes placed by directors to a 2018 financial statement, the credit union did not meet the current minimum capital asset ratio for a credit union of their size which was 3%.


The board recognised that the PRA could impose restrictions on the credit union should it not be able to satisfy them that it could meet the capital adequacy ratio in the future.

But they added: "Since the year-end the credit union has secured subordinated loan funding which has improved its capital asset position. A recovery plan has also been developed and this has been agreed with the PRA who have indicated that they will support the credit union whilst the recovery plan is ongoing, allowing the credit union to continue as normal with no restrictions place on its ability to trade."

The administrators say people will not have to pay back their loans immediately and that they are honouring the terms of the loan agreements.

Customers were advised that if salaries or benefits were being paid into savings account they would need to open a new bank account as soon as possible.

Those paying into a Pioneer bank account on or after March 3 were told to complete a "return of funds" request form which will be issued by the joint administrators.

They were advised to cancel direct debits or standing orders currently in place and to obtain the adminstrators' bank details to resume your loan repayments.

Currently, around 400,000 people across Scotland are part of a credit union – roughly about seven per cent of the population.

Credit unions offer many of the same services as banks and follow the same rules and regulations.

Michael Sheen, actor and social activist, has worked on the Scottish Government-backed People, Not Profit campaign, featuring in a video, to grow and raise awareness of the credit union sector.

Unlike banks, credit unions are owned and controlled by the people that use their services and are sold as a way you can save your money and get loans at competitive rates.

What makes credit unions different is that they’re not-for-profit, so any money they make goes back to the people who use them via their rates and dividends.

The money credit unions hold in savings accounts or current accounts is loaned out to other customers who need to borrow money at an affordable rate.

The FCA state that a completed annual return - which contains details of the company’s directors, shareholders and registered office address and annual profit and loss accounts must be completed for each year that a society is on the Mutuals Public Register.

Societies must submit an annual return and accounts to the FCA no later than seven months after the end of a society’s financial year.

According to the FCA a failure to submit a return by the due date is a criminal offence punishable by a fine of up to £1,000 per offence.

The FCA say the registration of a society that persistently fails to submit a return can be cancelled.

It warns: "So you should ensure that you submit your annual returns and accounts on time."

The last prosecution for not submitting their annual returns and accounts was in 2017, according to FCA records.

The FCA, which posted the 2018 accounts of the credit union, after the Herald asked questions about the level of scrutiny there was over the bank and its filings, said only that it was "closely engaged" with the Prudential Regulatory Authority (PRA), insolvency practitioner and FSCS "as the situation with The Pioneer Mutual Credit Union has progressed".

The banking watchdog has come under increasing fire over its ability to regulate with MPs having called for a parliamentary debate on to ensure it is fit for purpose. The FCA has said in the past few days that the cost of the FSCS is not sustainable.

It said: "We will continue to work with our partners to monitor the situation, and ensure consumer harm is minimised."

The credit union was launched in 1993, as the Barrhead Credit Union and sold itself as an "ethical way to save".

It provided a Payroll Savings Scheme to help "alleviate employees money worries by saving for a rainy day".

A Payroll Deduction scheme also prevented small debts spiraling out of control by providing members with what it called "flexible, affordable loans; a common sense alternative to loan sharks and payday lenders".

Over two years ago East Renfrewshire Council teamed up with the credit union to make paying rent easier.

If your rent is paid directly into a Pioneer Credit Union account then please get in touch with us and we can help get this sorted out.

In a video presentation, a representative of the council said Pioneer Mutual Credit Union were offering a new account that will make paying rent slightly easier even if you are in receipt of Universal Credit. It said they were working in partnership with Barrhead Housing Association and added:"We're encouraging our tenants to set up a budgeting account with the credit union.

"The purpose of the account is to have your Universal Credit paid directly into your account and whey your payment goes in your council tax and rent will be paid first before access is given to the rest of the funds."

Three years ago, Pioneer Mutual won the Community Impact Award at the East Renfrewshire Chamber of Commerce East Renfrewshire Business Awards.

Dermot O’Neill, chief executive of the Scottish League of Credit Unions said credit unions are hit by Covid-19 and a downturn in lending and an upturn in arrears but "the general pattern is positive". "The failure or success of a single credit union is unrelated to the failure or success of other credit unions," he said. "Individual credit unions will have individual challenges relative to where they are located."

Peter Gibson, chairman of the All-Party Parliamentary Group on Personal Banking and Fairer Financial Services, said in December that two reports about the FCA's handling of the London Capital & Finance (LCF) and Connaught failures provided “irrefutable evidence” that the FCA is failing to regulate effectively and that an inquiry is needed.

The first of the two highly scathing independent reports, by Dame Elizabeth Gloster into the collapse of LCF, concluded the City watchdog had failed to properly regulate the company and warned its handling of information from third parties regarding the business was "wholly deficient".

The report claimed the root causes of the City watchdog's failure to regulate the mini-bond provider properly were "significant gaps and weaknesses" in the policies and practices it implemented to analyse the business activities of regulated firms.

The second report, by Raj Parker into Connaught, warned the Financial Conduct Authority's regulation of entities and individuals connected to the fund was "not appropriate or effective" and it could have done more to protect investors.

Debbie Gupta, director of life insurance and financial advice at the FCA, told delegates in her keynote address at a Personal Investment Management & Financial Advice Association event on Wednesday that the regulator acknowledged it needed to change, adding the independent reviews of the regulator’s handling of LCF and Connaught made for “sobering reading for all of us”.

She added: “I wanted to reassure you that we are profoundly sorry for the mistakes we made and the devastating impact that has had on investors. Our approach to the consumer investment market will need to change and we will need to take account of the learnings from both the reviews”.

Ms Gupta said the regulator also shared the frustration of wealth managers and advisers over the cost of the FSCS.

She said the FSCS estimate that its compensation levy for this year would be 48% higher than in 2020 at over £1bn, showed the current situation was “unsustainable” and she said the FCA wanted “to see this come down”.

While saying the FCA recognised “the painful consequences of where we are today” and the need to consider ways to address it, she said the challenge was how to bring down the cost of the levy, noting that suggestions from across the industry had been “inherently contradictory”.