The Association of Financial Mutuals (AFM) has welcomed the Law Commission’s final report reviewing friendly society legislation.
The recommendations and draft bill follow a two-and-a-half year-long project which included a public consultation and extensive engagement with industry. The Law Commission is backing a number of changes to modernise friendly society legislation and align requirements with company law.
Included in the report is a recommendation to repeal the 1974 Act would be repealed, ending confusing overlap between the two governing acts. This would happen three years after the new legislation takes effect, giving societies time to re-register or convert to another legal structure. The Financial Conduct Authority, has committed to writing to affected societies and offering practical support during the transition period, including template documents and training seminars.
The Law Commission also wants to give greater flexibility to friendly societies to invest, allow them expand the range of insurance products they can offer, and enable them to engage with members more easily through electronic communications.
Member protections would be preserved, under the changes, the Commission adds, while societies would be given better support to grow sustainably.
“The current law is spread across different pieces of legislation,” said Solène Rowan, commissioner for commercial and common law, “making it difficult to understand and apply. Our recommendations would simplify and clarify the rules for friendly societies, helping them operate more effectively, adapt to changing needs, and grow in the future.”
Related: UK mutuals body warns red tape threatens financial resilience
Under the Commission’s recommendations, societies would be able to choose their own financial year-end date, rather than being tied to a single date shared across the whole sector. By spreading year-end reporting activity more evenly throughout the year, the change would reduce pressure on friendly societies and on accountants and auditors who currently face a concentrated workload, says the Commission.
Smaller, non-regulated friendly societies would be treated under a lighter-touch audit regime, which the Commission says would reduce costs for those that provide discretionary benefits such as help with funeral costs or hardship payments. Friendly societies would also benefit from simpler rules on investing their funds and forming subsidiaries to diversify their services, it adds.
Changes would make it easier for societies to combine or transfer business to one another where this benefits members, through streamlined processes with proportionate safeguards, says the Commission. It hopes this will help smaller societies achieve economies of scale and remain financially sustainable for future generations of members.
“Throughout the reforms,” says the Law Commission, “member protections have been preserved. Members will continue to have a say in major decisions affecting their society, including transfers, amalgamations and conversions, with clear information provided before any vote.”
In response, the AFM said: “These changes will help to ensure that our members can compete on a level-playing field with proprietary companies.
“Additionally, although the issues ultimately fell outside of the scope of the project, we are pleased to see strong statements supporting government reviews of both the public interest entity (PIE) audit regime and the capital-raising mechanisms available to friendly societies.
“HM Treasury must act quickly to respond to this report and make time to bring the bill to the floor of Parliament for debate. The Law Commission has spent a considerable amount of time engaging with industry to ensure that their reforms deliver what is needed for the sector.
“Having also delivered a draft bill alongside their report, the implementation of these reforms can be a quick win for government to deliver change now.”
AFM CEO Andrew Whyte added: “Friendly society legislation has not been updated for many decades, and it is no longer fit-for-purpose for the modern firm.
“Friendly societies have a unique contribution to make towards government objectives to improve financial resilience and promote regional growth. Speedy implementation of these reforms will be imperative to making good on these ambitions and the ambition to double the size of the mutual and co-operative sector.”
The final report is accompanied by a draft Bill, the Friendly Societies (Amendment) Bill, showing how the recommendations could be put into law. It will now be for the government to decide whether to take forward these reforms.
