Co-operators feed back to FCA over draft guidance

Draft guidance from the Financial Conduct Authority (FCA) promises to shake up not only the regulation of co-operatives and community benefit societies, but also their very essence, as the...

Draft guidance from the Financial Conduct Authority (FCA) promises to shake up not only the regulation of co-operatives and community benefit societies, but also their very essence, as the definitions of these entities come under scrutiny. While co-operators have welcomed the debate, many are critical of the FCA’s proposals and are responding to a consultation on the draft guidance, which is open until 28 November.

Peter Couchman, chief executive of the Plunkett Foundation, says the consultation is an important part of ensuring the new Co-operative and Community Benefit Societies Act 2014 functions properly. “We’ve been really impressed by the FCA’s willingness to reach out, engage with and understand the sector,” he says. “We’ve found them far more open to dialogue than previous versions.

“The act sets out the basics by which co-ops will be registered. The guidance will help shape this in more detail. We hope that the importance of demonstrating genuine member engagement is a vital part being registered as a co-operative.

“We’ll also be challenging some of the guidance around community benefit societies where it fails to recognise that a CBS, whose rules adhere to the International Co-operative Alliance values and principles, is a co-operative and should be allowed to call itself one.”

John Goodman, who has worked for organisations such as Co-operatives UK, says: “I’ll certainly be feeding back to the FCA, which is being too prescriptive about defining and regulating co-operatives. There’s a strong case for tightening up on both definition and regulation, but this has to be done in partnership with the sector if it is to be just and workable.” Co-operatives UK itself is consulting its members and will issue a statement on its response on 20 November.

Other organisations are already going public with their concerns, many of which focus on the FCA’s proposals to limit interest on society share capital at base rate or below.

Some concerns arising from the draft guidance include what Martin Meteyard of Co-operative Business Consultants describes as “an interesting challenge to consumer co-operative societies in particular”. The FCA sets out that it does not generally consider societies to be co-operatives where most of its goods or services are sold or delivered to non-members, its business mainly benefits non-members, or more than 25% of the membership are investors with no other relationship with the society.

Dave Hollings of Co-operative and Mutual Solutions (CMS) says: “This excludes the mainstay of the British co-operative movement for which the legislation was first enacted; the retail consumer movement. The Rochdale Pioneers, after much heated debate, decided that their model of a consumer co-operative shop was not to be fully mutual, so non-members could shop there. Any definition of ‘co-operative’ which excludes the model set up by the Rochdale pioneers is fundamentally deficient.”

He says CMS struggles to see how this definition applies to worker co-ops. “Clearly most of their goods and services are delivered to non-members,” Mr Hollings says. “It could be argued that the business only benefits members, so long as you narrowly define ‘benefits’ as providing employment only.

“That requires some mental gymnastics. The FCA should define businesses as co-operatives if they’re in line with the co-operative principles laid down by the International Co-operative Alliance.”

Mr Meteyard says: “I think fears that this also applies to worker co-operatives are unfounded as the ‘service’ they provide is jobs to their members as implied in [paragraph] 4.4.3.”


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