The All Party Parliamentary Group for Mutuals has called for an equal playing field for building societies, friendly societies and mutual insurers.
In a report, “How can mutuals raise capital without destroying the mutual principle?”, the group recommends the creation of new capital instruments for mutuals and suggests that individual members should be enable to invest in their mutuals through new types of shares.
The All Party Parliamentary Group, which includes 95 members from both Houses of Parliament, also wants the government and regulators to back the Mutuals’ Redeemable and Deferred Shares Bill. The Bill, sponsored by Lord Naseby, aims to amend the law relating to societies registered under the Industrial and Provident Societies Act 1965 or the Friendly Societies Act 1992, along with certain mutual insurers. This would permit the use of new classes of redeemable share capital and deferred share capital.
The report says the Financial Conduct Authority should abandon its existing definition of “sophisticated” and “unsophisticated” investors.
The FCA currently describes sophisticated investors as retail clients with extensive investment experience and knowledge of complex instruments. It says they are better able to understand and evaluate the risks and potential rewards of complex investments.
The report also calls for a change in the law governing regulators, arguing that the UK’s regulatory and policy environment is “less in tune with mutual business than in other EU countries”. It says regulators should better understand how mutuals are owned and operate, and should include staff with direct experience of mutual business.
“The group recognises the modest advances that have been made in building societies, co-operatives and credit unions legislation over the past few years but argues that this falls short of the major overhaul that is required,” says the report.
“A Treasury-led working party should be established to examine the legislative barriers to a larger and stronger mutual sector and the likely benefits that new legislation for mutuals may bring to the UK economy. It should report in six months.”
The report also expresses concerns over the Co-operative Bank ’s retention of its name.
Jonathan Evans, chair of the parliamentary group, warned that the UK financial system has become more concentrated in light of the financial crisis.
“The consequence of that is there is less choice for consumers and less competition in the high street,” he said. The market is dominated by plc firms whose primary interest is serving their shareholders.
“We were very fortunate during the course of this inquiry to secure testimony from some of the most important voices in the financial services sector. What we heard loud and clear was that without proper access to capital mutuals will never be able to truly compete with their plc counterparts. That’s both bad for consumers and the wider economy.”