Hundreds of co-ops campaigned for change after FCA draft guidance seemed to exclude retail societies and worker co-ops from the co-op model. Other concerns included caps on share interest rates and an outdated definition of a bencom.
The FCA responded with amendments after a consultation in 2014 attracted responses from more than 500 societies; a second consultation this year saw 163 societies respond.
Caps on share interest have been scrapped and the definition of what constitutes a co-op is now “clear and inclusive”. A bona fide co-operative society is “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”.
The UK co-op test is now based on the International Co-operative Alliance definition, with all Alliance principles recognised as guidelines and its values potential indicators.
Other key points include a modernised definition of bencoms. A bencom can be wholly charitable or benevolent but does not have to be, as long as it conducts its business for community benefit.
Indicators to assess share interest have been refined, and societies can justify a decision to pay interest at a particular rate. The FCA recognises that features of society share capital, such as retention of par value and a lack of capital gain, are important when assessing risk of misuse.
It has legitimised the role ‘non-user minority investor-members’ can play in financing co-ops and this share capital is not subject to the indicator-based approach. The FCA will not interfere with rates societies pay to lenders and accepts this is ‘a commercial matter’.
James Wright, Co-operatives UK policy officer, said: “We need to say a huge thanks to all our members and partners who participated in the various consultations, lobbying and campaign efforts that have brought about this very positive outcome. We also thank the FCA for listening to our concerns and responding in this way.”
But there remain concerns. Bencoms will still be prevented from identifying as co-ops because the FCA has not been convinced that all bencoms meet its definition of a co-op and that co-operative and community purposes can align.
The guidance should have contained clearer acknowledgement that societies can be commercial enterprises as per the ‘industry, business or trade’ wording in the Co-operative and Community Benefit Societies Act, says Co-operatives UK, which would also like clearer recognition that many bencoms are social enterprises, along with acknowledgement that paying interest on member capital allows for larger member contributions than would otherwise be the case, which helps societies fulfil their mutual or community purpose.
“We now have a better focused and more accessible document with a clearer delineation between legal requirements, FCA policy and good practice,” Co-operatives UK said in its analysis. “The FCA clearly acknowledges the need for flexibility in its interpretive policy to reflect the huge variation in legitimate co-operative activity and allow innovation.”
But, it added, how the FCA implements the guidance will be more important than what is written down.
“There is significant work to do for those who advise societies – across sectors and at all stages of development – to ensure this newly defined regulatory framework can be navigated and complied with,” it said. “We need to define clear positions and red lines to ensure the FCA fulfils its role in a way that protects against misuse while still allowing growth and innovation.”