The co-operative test: the most important principles of a co-op

To be officially recognised as a co-operative, all societies must undergo a ‘test’ to determine if they are ‘bona fide’. In an attempt to clarify what this means, the...

To be officially recognised as a co-operative, all societies must undergo a ‘test’ to determine if they are ‘bona fide’.

In an attempt to clarify what this means, the sector’s registrar, the Financial Conduct Authority, is proposing a definition.

Last year, the FCA asked societies and individuals to respond to its guidance on what makes a co-operative. Many respondents said the statement of identity, values and principles from the International Co-operative Alliance should be incorporated into its guidance.

This statement is internationally recognised, accepted within the co-operative movement and also forms part of the International Labour Organization’s Recommendation 193.

Some respondents said the statement must be adopted in full, while others believe only parts should referenced. The FCA says it is not appropriate for it to formally adopt proposals created by a third party, but that it will use some of the principles in its guidance.

It also says compliance with the ICA statement alone is not a strong indicator of being a ‘bona fide’ co-operative.

“The definition on its own is too broad in scope to enable us to determine whether we are satisfied a society is a bona fide co-operative society,” it says, “and provides too little guidance for those applying to us for registration. The same can be said of the values.”

But looking at the seven co-operative principles, the FCA says the first four (voluntary and open membership, democratic member control, member economic participation, and autonomy and independence) can in part be demonstrated through the governance arrangements and rules of the society.

It is proposing to use these four as a benchmark to determine whether a society is a bona fide co-operative.

With principles 5, 6 and 7 (member education, training and information; co-operation amongst co-operatives; and concern for community), it says these would not assist the FCA in determining compliance.

The registrar proposes using the first four principles as indicators to verify and validate what is a “bona fide” co-operative.

How the FCA defines a co-operative

In its guidance for new co-operatives looking to register, the FCA is proposing to say:

“On application for registration of a new co-operative society, meeting the Definition, Values and Principles 1 – 4 are indicators that the society is a bona fide co-operative society. A society can demonstrate that it is a bona fide co-operative society through statements of intent in their application form as to how the society is to operate, and through their rules and governance arrangements.

“After registration societies should be able to demonstrate that they are running the society in accordance with the relevant conditions for registration,

“In applying the guidance above we take into account the diversity of co-operative enterprise, in particular through considering the guidance in light of the associative characteristics of the co-operative society. For example, we acknowledge that the nature of the relationship between members and their co-operative is different in a workers co-operative than in a consumer co-operative such that in the former, member participation in the business of the co-operative would be through labour, whereas in the latter, it would be through the purchasing of goods or services.

“We do not consider that principles 1 – 4 are exhaustive; there may be other indicators that a society is a bona fide co-operative society. Principles 5 to 7 above may provide further evidence of a society being a bona fide co-operative society but we do not consider that we should necessarily assess societies against those principles.”

How Co-operatives UK defines a co-operative

Co-operatives UK is asking its members what it thinks of the proposals and is compiling a sector-wide response.

The body for co-operatives says the sector needs to present clear policy positions to government and the FCA, reflective of the needs and views of members.

It has drafted a policy position paper, which is open for comments to ensure the collective voice of co-operators can be heard.

In its conclusion to the paper, Co-operatives UK says:

“As registrar the FCA is required to design and carry out a Co-operative Test. This should be based on a direct interpretation of the Statement. Specifically the Co-operative Test should comprise three parts, covering the three parts of the Definition:

  • Purpose: The primary purpose of a co-operative must be to meet a common need or aspiration of its members, and this purpose must come before profit and financial return
  • Ownership: In a co-operative ownership must be shared equitably between all members
  • Control: All members must exercise democratic control over their enterprise

“While the FCA can to an extent be guided by the values and principles, these should not form part of its Co-operative Test.

“Any enterprise passing the Co-operative Test, regardless of legal form, should be recognised and treated as a co-operative by government in the UK.

In its critique of the current Co-operative Test, Co-operatives UK adds:

“The FCA’s current Co-operative Test correctly makes meeting a common need or aspiration one of the core criteria and this should be where it focuses its attention. But another core part of its current test requiring ‘participation’ is inappropriate.

“The FCA incorrectly links meeting a common need or aspiration to a requirement for members to participate in the co-operative’s business, with great emphasis on trade. Yet as neither participation nor trade are stipulated in the Definition they should not be part of the FCA’s Co-operative Test. We believe that it is possible for members to benefit from the activities of a co-operative in meaningful non-financial way without them having to participate in direct economic exchange.

“Participation does however feature in the following Principles: 2 Democratic Member Control; 3 Member Economic Participation; 5 Education, Training and Information; and 7 Concern for Community. We note that Principle 3 Member Economic Participation is often mistakenly thought to be about trade and exchange, when it is instead explicitly about contributing and controlling capital.

“If the FCA is to consider participation in any way, high value should be attached to participation through ownership, democracy, capital contribution, education, and volunteering.”

What do you think?

The deadline for responses direct to the FCA is 14 August. For more details and to respond visit:

Alternatively, Co-operatives UK is compiling a response on behalf of the sector. To read its draft documents and to comment further by 17 July, visit: or email: [email protected]

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