Help regulator make co-operatives fit for the 21st century

In two weeks, a consultation that can affect the formation of co-operatives is due to close.

Registrations authority, the Financial Conduct Authority, is asking the movement what it thinks of its draft guidelines that aim to bring more transparency to what can be quite a murky process.

There has been a number of developments over the past year that highlights concern or confusion in our movement. Stand-out moments include: the governance crisis at the Co-operative Group that is still debating how members control their co-operative; and whether energy co-operatives should actually be co-ops since the FCA regards some as investment vehicles.

Certainly with the latter, the FCA has been involved; and it has also registered the rules of the Co-operative Group, so it must be satisfied with the new governance structure. But in its document, the FCA says elected directors must always be the majority on the board.

In this edition, a number of stakeholders in the development of the sector have voiced concerns about the future of community shares and whether a community and benefit society can call itself a co-operative.

There also needs to be clarity around what the FCA believes is not a co-operative. For example it says a society is not a co-op when most of its goods or services are to non-members. An oversight, I’m sure, but that would pretty much eradicate the £17bn consumer co-op sector!

Vague references are also made to how much co-operatives should be aligned with the International Co-operative Alliance’s values and principles. At one point it says co-operatives should be compliant with those principles, but later on it suggests they need only be partially aligned. And when it does discuss co-operative principles, it doesn’t list all of them.

We should not just focus on the negatives, though. That the FCA is doing this is a positive move; under previous regulators, co-operatives have been seemingly an inconvenience. Especially over issues such as the demutualisation of the Musselburgh and Fisherrow Society seven years ago, when no action was taken over directors who received a massive windfall. The Financial Services Authority investigated, but took no action to stop the winding up of the co-op.

One of the first things the FCA says in this document is that it will use its powers to maintain confidence in societies. Maybe this would have avoided the situation in Musselburgh.

Around the registration and ongoing administration of co-operatives, there is still much more that needs to be done to help with the transparency of the sector. For example, it’s not easy to look at the annual accounts of a co-op or its current directorship. Not a great feat for a democratic organisation. (In this consultation, the FCA puts the entire burden on societies making such reports available to members and other interested parties.) Societies are years behind companies, which, for example, have these reports available in a few clicks online.

We know that co-operatives are a business fit for the 21st century. This consultation is an opportunity to make this much clearer.