Following lobbying from Co-operatives UK and others, Government has announced that it will be working with the sector to explore ways of improving 'regulatory clarity' for co-operative and community benefit societies.
This creates an all too rare opportunity to explore a range of issues, including an overhaul of the policymaking, legislative and regulatory functions for co-operative and community benefit societies, something Co-operatives UK has long called for.
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We are concerned that issues with legislation and registry processes mean the society forms are not as user-friendly as they should be. If we want the co-op option to be more accessible and mainstream, we need incorporation as a society to be simpler, faster, cheaper, less cumbersome and more responsive to the needs of cutting edge co-operation. This is in part about legal and regulatory clarity but it is also about government's systems and institutional arrangements.
So what's happened?
In 2017 the Law Commission made the following recommendation to Government:
“Government should consider whether the registration and regulation of registered societies and community interest companies should be overseen by a single regulator.” Law Commission, 'Pension Funds and Social Investment'
At the same time we were in discussions with the Industrial Strategy team in BEIS about how the whole institutional arrangement for societies could be overhauled as part of a Co-operative Sector Deal. We believe some of the current institutional arrangements make it difficult to achieve much needed improvements in law, policy and service for societies. Along with others in and around the sector, we have been pressing for two key changes:
- for legislative and policymaking responsibility for societies to be moved from HM Treasury to the Department for Business
- for the society registry function to be moved out of the Financial Conduct Authority into something better-purposed, better-resourced and closer to the orbit of the Department for Business and Companies House
We had cause to hope that Government would use its response to the Law Commission as an opportunity to make a decision on this issue. In June 2018 Government published its response to the Law Commission:
"The Government will engage with registered societies and community interest companies to explore ways in which greater regularity clarity might be achieved by non-legislative measures. We will also keep under review the possibility of legislative options in future." Government response to Law Commission
While this clearly does not address the specific point regarding institutional arrangements, it does create an opportunity for societies to talk to Government about regulatory issues that they would like addressed. Co-operatives UK will make the most of the opportunities contained in this positive development.
Our work on institutional arrangements
In recent years we have worked with officials at HM Treasury, the Department for Business Energy and Industrial Strategy (BEIS) and the Office for Civil Society to gain official recognition that there may be problems with the current arrangements for societies. In 2015 Treasury officials conducted an internal review, which led them to accept the rationale for moving the legislative function to the Department for Business but also to emphasize the complexities involved. Following our participation in the Mission Business Review in 2016, the then Minister for Civil Society briefly gained an interest in this issue.
Since the summer of 2017 we have been working with BEIS to see whether this agenda can be taken forward under the business environment theme of the Industrial Strategy. BEIS officials were given further impetus to work on this by a very helpful recommendation in a Law Commission report on social investment.
We also raised this issue in our submission to the May 2018 Civil Society Strategy consultation.
Support for institutional changes
We believe there is significant support among societies and stakeholders for moving the legislative function to BEIS and for moving the registration function out of the FCA into a consolidated social economy registrar. To ascertain support among our members we ran an online consultation in 2016. In all 56 respondents expressed support, representing a very diverse range of societies including large retailers, worker co-operatives, community businesses and public health mutuals. No one responded negatively.
Moving the legislative and policymaking function to BEIS: benefits and risks
We have championed this institutional change more than any other. The current siting of responsibility for co-operative and community benefit societies in government is illogical and dysfunctional. But the move would create risks to mitigate.
- societies would be served by officials with a specific business framework remit, rather than by officials responsible for financial services
- while not a panacea allowing instant improvements for societies, seeking action through departmental and ministerial channels with a specific business framework remit would constitute a considerably lessor challenge compared with the status quo
- BEIS has primary legislation slots specifically to carry out reforms to legal forms, HM Treasury does not
- once BEIS has practical responsibility for the society corporate framework it will be easier for this to be maintained alongside the company framework as matter or course, reducing future disparities
- easier development of holistic co-operative business policy, without the need for so much complex cross-departmental liaison
- officials looking after company law and society law might not appreciate the crucial distinctions between the two
- policy made for companies might be too readily misapplied to societies
- Co-operatives UK and others lobbying on behalf of societies might lose some useful links into other parts of HM Treasury, such as tax policy
A consolidated social economy registrar: benefits and risks
While we believe bringing societies and community interest companies together under a new regulator could have material benefits, there would also be risks to mitigate. We must defend the distinctive form and function of societies, which have evolved specifically to facilitate co-operative action and have so much to offer people building a more inclusive economy. In particular we must avoid policy and regulation designed for less democratic, less participatory and more capital-oriented forms of enterprise being misapplied to societies.
- more investment in digital systems for a faster, more straightforward and less expensive registration
- better oversight and accountability for the registrar’s performance and policymaking
- a free to access, fully digitised and up-to-date Mutuals Register
- officials in a consolidated registrar may struggle to appreciate the important differences in form and function between societies and community interest companies
- the consolidation of registry functions might encourage policymakers to ignore the important differences in form and function between societies and community interest companies
- the robustness of the registry policies developed by the FCA could be eroded
In Whitehall this work will most likely be a collaboration between BEIS, HM Treasury and the Office for Civil Society, with input from the FCA and the CIC Regulator. We've been told to await further details.
We have good reason to believe that the soon to be published Civil Society Strategy will also provide further impetus for government to take action for societies.
We will work with our members and experts to develop a position on how to create a more user-friendly corporate framework for societies through non-legislative means. Our recent success in lobbying for fairer audit requirements for societies demonstrates that good things are still possible under the current dysfunctional arrangements. At the same time we will take this opportunity to restate the case for reforms that do require legislative action, including an overhaul of institutional arrangements.
Members of Co-operatives UK who want to feed into this work should email our Policy Officer: [email protected]