Parliament has approved legislation to allow friendly societies and mutual insurers to raise capital from members.
The Mutuals Deferred Shares Bill, which does not cover co-operatives, completed its final stage in the House of Commons on 6 March and will now receive Royal Assent.
The act permits the creation of member investment shares for the first time in insurance mutuals. Up to now, these firms can only raise capital through retained earnings and debt.
Shares will qualify as restricted tier one capital for regulatory purposes and provide mutual insurers and friendly societies with the opportunity to raise additional working capital for business growth and new products.
The private members bill that was piloted through the House of Lords by Lord Naseby and completed in the Commons by Conservative MP Jonathan Evans. Both worked with government and opposition to build all-party support for the bill.
Lord Naseby said: “Our challenge was to amend the capital regime in mutuals to permit the injection of external capital, whilst safeguarding both the core purpose and mutual integrity of the business. I believe we have achieved that objective.”
Mr Evans added: “The important contribution made by mutuals to both innovation and corporate diversity has been significantly undermined by their inability to raise regulatory capital other than by retaining past profits, without losing their mutuality. I have no doubt that many more mutual companies would still be around today if these measures had been passed three decades ago.”
The provisions in the law are inspired by a number of internationally renowned mutuals, including Desjardins in Quebec, Canada, which has a tradition of raising investment capital from its members, while ensuring the cooperative ownership of the business.
The next step is for detailed regulations to be prepared by HM Treasury and agreed with regulatory authorities. Once adopted by parliament, the new regime will permit firms to begin issuing shares.
The bill was devised by Mutuo, the cross sector think tank and consultancy, and is the team’s fifth consecutive bill to modernise mutuals law. Expert legal advice was provided by John Gilbert of Hogan Lovells International LLP.