7.4 Financial Conduct Authority

7.4.1 The Mutuals Team

The Mutuals Team at the FCA is the registrar of mutual societies, including co-operative and community benefit societies, building societies, friendly societies and credit unions. As registrar, it has the powers to cancel the registration of a society, as well as to register new societies.

The role of registrar was transferred from the Financial Services Authority to the FCA under the powers of the Financial Services Act 2012 (Mutual Societies) Order 2013. Schedule 1 Paragraph 5(1) says “the FCA must maintain arrangements designed to enable it to determine whether persons are complying with requirements imposed on them by or under the legislation relating to mutual societies”.

This imposes a legal duty on the FCA to have systems in place to determine whether or not co-operative and community benefit societies are meeting their obligations under society law. Any society not fulfilling its duties under society law, as expressed in its registered rules, could have its registration cancelled (see Section 7.5.2). This could include matters connected to a society’s share capital, so to this extent the FCA and its Mutuals Team have a responsibility to ensure that societies act within society law when making a community share offer.

7.4.2 Inspections and investigations

The Co-operative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014 gives the FCA the same powers to investigate the affairs of a society as are currently held the Secretary of State to investigate companies under Part 14 of the Companies Act 1985.

This includes the powers to direct a society to produce documents or information, or to authorise an investigator to enter the premises of a society to obtain such evidence. It is an offence to destroy or falsify information relating to the society’s affairs.

At the request of a minimum of ten members, who also agree to underwrite the cost of the task, the FCA can appoint a professional person to inspect and report on the financial affairs of a society. The FCA has the powers to order that the costs of the inspection to be borne by the applicants, the society, or its officers, after the outcome of the inspection is known.

Section 106 of the Co-operative and Community Benefit Societies Act 2014 gives the FCA powers to appoint inspectors to investigate the affairs of the society, if so requested by at least 10% of the members of the society, or at least 100 members, whichever is the smaller number. The inspectors can be instructed to report to the FCA or a special meeting of the society. The applicants are required to underwrite the cost of the investigation, subject to the FCA determining who should bear the cost when the outcome of the investigation is known. The inspectors have far-reaching powers to inspect the accounts and documents of the society, and to question officers, employees and members of the society under oath. 

7.4.3 Sanctions

The failure of a society, its officers, directors or senior employees to abide by society legislation, its own rules, or any other legal duties borne by the society, can lead to civil or criminal sanctions being imposed. This can include the loss of office for officers and directors, and ultimately their disqualification.

On 6 April 2014 the Company Director Disqualification Act 1986 was extended to cover societies.  This means that a management committee member of a society can be disqualified from serving as a member of a management committee of any society, or being the director of a company, for a period specified by a court order, or some other form of legally binding undertaking.

7.4.4 Suspension and cancellation of registration

Sections 5 to 8 of the Co-operatives and Community Benefit Societies Act 2014 give the FCA the power to suspend or cancel the registration of a society. This power of cancellation is mainly applied to societies that repeatedly fail to submit an annual return and accounts. Failure to submit an annual return and accounts to the FCA no later than seven months after the end of a society’s year end is a criminal offence punishable by a fine of up to £1,000 per offence.

The FCA can also suspend or cancel the registration of a society which is failing to satisfy the conditions of its registration as either a co-operative society, community benefit society or pre-2014 registered society. This can include societies that have obtained their registration by fraud or mistake, exist for illegal purposes, or are wilfully violating the provisions of 2014 Act in some other way.

The procedure for suspending or cancelling the registration of a society is set out in the 2014 Act. This includes details of the notice the FCA must give to a society of its intention to cancel or suspend registration, and the rights of a society to appeal against the FCA’s actions.

A society can voluntarily choose to cancel its registration. The procedure for this is explained in Section 2.9.5.  Cancellation must not be used to avoid insolvency proceedings.