Finalised guidance from the Financial Conduct Authority

In November 2015 the Financial Conduct Authority (FCA) issued finalised guidance on its role as registrar of co-operative and community benefit societies.

This key document sets out the main regulatory policy under the Co-operative and Community Benefit Societies Act, how the FCA will fulfill its legal duties, and the main legal obligations of societies.

We believe this is useful guidance and agree with much of the regulatory policy that underpins it. In all it is a massive improvement on the FCA’s draft guidance issued in October 2014, which caused so much confusion and concern for our members large and small across numerous sectors. Headlines are:

  • A clear inclusive definition of a co-operative

  • A modern definition of a community benefit society

  • No low simplistic caps on share interest

  • More refined and nuanced indicators to assess share interest

Read the FCA guidance here and its summary of consultation feedback here.

Since October 2014 we have been involved in vocal lobbying and campaigning, have gone into detailed consultation with our own members, and led in responding to two FCA consultations. Over 500 societies responded to the first FCA consultation in November 2014 and another 163 responded to a second FCA consultation in July. The extent of the improvements in policy terms is testament to the collective impact we have had with members and partners on this.

Co-operatives UK thanks all its members and partners who participated in the various consultations, lobbying and campaign efforts that have brought about this very positive outcome.  

Key policy successes

We now have a better focused and more accessible document with a clearer delineation between legal requirements, FCA policy and good practice.

The FCA clearly acknowledges the need for flexibility in its interpretive policy to reflect the huge variation in legitimate co-operative activity and allow innovation.

Co-operative identity

The International Co-operative Alliance (ICA) Definition is now the foundation of the UK ‘co-op test’, with all ICA Principles recognised as guidelines and the ICA Values accepted as potential indicators.

"We generally consider something to be a bona fide co-operative society where it is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise." FCA Guidance

In addition, the FCA now explicitly recognises that the key feature of member relations in a co-op is one of mutuality, with the co-op the means through which members meet common economic, social, and cultural needs and aspirations. Inappropriate requirements based entirely on trade as the only form of participation have thankfully been dropped.  

Community benefit societies

The FCA’s definition of a community benefit society is greatly improved from October 2014 and is now applicable to today’s enterprising innovative social economy. The damaging characterisation of all community benefit societies as ‘charitable and philanthropic’ organisations in which members invest with no hope of return is gone. So too is the reference to comments made by MPs recorded in Hansard from 1938.

"A community benefit society can be wholly charitable or benevolent, but it does not have to be, as long as it is conducting its business for the benefit of the community." FCA Guidance


Policy on capital and the interest rates paid to members is greatly improved. The simplistic blanket restrictions on interest rates are gone. Instead we have a useful indicators-based approach, which the FCA has our full support in applying in order to prevent societies being misused as investment vehicles.

We are delighted that the golden rule behind the indicators is that societies can pay interest up to what is necessary to obtain and retain member capital. Crucially, the FCA has refined its indicators from July 2015 to allow greater flexibility and sophistication in how different societies can legitimately go about complying. For example, it is made clear that societies will not be required to set rates in advance. Rather, they must declare maximum rates, though not necessarily in their rules. The FCA will expect societies to have clear justifications for interest rates targeted, declared and paid, but the guidance is not prescriptive as to the method used which is extremely welcome. We urge our members to take these indicators very seriously and to be diligent in applying those methods best suited to their mutual and community businesses.    

"Societies can justify a decision to pay interest at a particular rate, and be able to demonstrate the basis for that decision." FCA Guidance

Crucially, the FCA recognises that the unique features of society share capital, such as retention of par value and a lack of capital gain, are important factors to consider when assessing the risk of misuse. 

The FCA has clearly acknowledged and legitimised the role ‘non-user minority investor-members’ can play in financing some co-ops. And crucially the guidance makes clear this share capital is not subject to the indicator-based approach discussed above. We see getting clear and appropriate policy here as crucial to developing innovations in co-op capital.  

It’s also great to see the FCA will not interfere with rates societies pay to lenders and accepts that this is “a commercial matter.”

Missed opportunities

Despite the important successes above there are areas where we feel the FCA has not improved its policy in the way many of our members would have liked.

We believe the guidance should have contained clearer acknowledgement that societies can be commercial enterprises as per the “industry, business or trade” wording in the Co-operative and Community Benefit Societies Act.

We would have preferred clearer recognition that many community benefit societies are social enterprises.

The FCA has not been convinced that many community benefit societies meet the registrar's own definition of a co-operative and that co-operative and community purposes can align. As a result the FCA will continue to prevent community benefit societies identifying as co-ops.

Finally, we believe the FCA guidance should acknowledge how paying interest on member capital allows for larger member contributions than would otherwise be the case and thus can help societies fulfill their mutual or community purpose.

Next steps

The release of this guidance is not the end of our work in terms of regulation. How the FCA implements the guidance is more important than what is written down.

There is significant work to do for those who advise societies - across sectors and at all stages of development - to ensure this newly defined regulatory framework can be navigated and complied with.

In policy terms we need to define clear positions and red lines to ensure the FCA fulfills its role in a way that protects against misuse while still allowing growth and innovation.    

For more details or to help shape our ongoing work email our Policy Officer James Wright.

Background consultations

Our response to the second FCA consultation in July 2015 can be read here.

The outcome of our member consultation on co-operative identity in July 2015 can be read here.

The outcome of our member consultation on capital in July 2015 can be read here.

Our response to the first FCA consultation in November 2014 can be read here.

"Superb stuff - best consultation response I’ve read in many a year. Worth the membership fee alone!" Dave Boyle, Principle Six

Thank you to all our members who participated in our consultation process. Together we make a bigger difference.