Co-operatives UK highlights concerns over future of co-op identity

A consultation on co-operative identity has been launched by the sector’s registrar. Following on from last year’s consultation about its connections with the co-operative movement in general, the Financial...

A consultation on co-operative identity has been launched by the sector’s registrar. Following on from last year’s consultation about its connections with the co-operative movement in general, the Financial Conduct Authority is asking the sector to comment on a further three areas.

They are: the setting of interest rates; the concept of a ‘bona fide co-operative society’; and its names policy.

But Co-operatives UK has expressed concern that “the official definition of a co-operative in the UK has become a high-risk and somewhat confused issue”.

Last October, the FCA set out an “overly prescriptive interpretation of what a co-operative can be, with significant departures from the International Co-operative Alliance (ICA) Statement on the Co-operative Identity”.

It also says that a strict reading of the FCA’s definition appears to exclude the UK’s consumer retail co-operatives, which are the foundations of the UK movement.

Meanwhile, more than 100 employee-owned co-operatives with a combined turnover of £112.4m could also be excluded, along with many community-owned pubs and shops saved using the co-operative model.

“But hardest hit,” says Co-operatives UK, “is the community energy sector where the legal foundations of some long-established enterprises are being undermined. All this is causing damaging uncertainty that erodes confidence in the co-operative economy.”

In a draft proposal on how it defines a “bona fide” co-operative, the FCA said co-operatives should adhere to the first four principles (voluntary and open membership, democratic member control, member economic participation, and autonomy and independence). It said it would use these as an indicator for what is a co-operative.

Meanwhile, in a draft policy position document, Co-operatives UK said: “The [ICA] statement gives no instruction about how to use the values, but as they are presented as separate from the definition, we assert that they should not be used as criteria in the UK’s co-operative test.

“Instead, the values make claims about the motivations behind co-operatives, and should be a guide to members in running their co-operatives.

“The values should assist the FCA in understanding why people want to start and run co-operatives. But we advise caution here as value-based assessments can easily be subjective, which makes for poor regulation.”

Co-operatives UK also said another part of the FCA’s consultation is of “vital importance” for the sector too, which is how the FCA ensures co-ops are not misused as investment vehicles.

The FCA is proposing a range of indicators that could restrict the rates of interest or allow co-operatives to change the proposed interest rate amount. The primary purpose behind this is to prevent mutual societies being misued as investment vehicles, according to Co-operatives UK.

But the sector body said it is strongly opposed to any attempt to impose low or arbitrary caps on interest paid on share capital.

“These would represent a significant new regulatory burden for mutual businesses and would prevent people pooling their resources to meet their own needs,” said the consultation document.

Co-operatives UK said withdrawable share capital is very different to ordinary share capital of investor-owned and profit-driven businesses.

“It cannot be bought or sold and only ever retains par value,” said Co-operatives UK.

“Members are rewarded with a steady return over the long-term rather than short term capital gain from fluctuations in share price. It has been argued that as a form of equity it is akin to capital introduced by business partners.”

Click here to read more about the co-operative test – the most important principles of a co-op – and to take part in the consultation.

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