But co-ops and other industrial and provident societies will also see some changes on or after 1st April 2013:
- the registration role moves from the FSA to the Financial Conduct Authority (FCA) on 1st April 2013 and
- if section 1 of the Co-operative and Community Benefit Societies and Credit Unions Act 2010 is implemented the different identities of co-ops and bencoms will be clearer.
In general, the draft Mutual Societies Order, issued last year would simply transfer the function of registering societies under the Industrial and Provident Societies Act 1965 from the FSA to the FCA. It also gives a limited role to the PRA – see Schedules 2 to 4 of the Draft Order.
However, Schedule 1 of the Draft Order makes two interesting changes.
Paragraph 4(1) of the Schedule provides:
“The FCA must maintain arrangements designed to enable it to determine whether persons are complying with requirements imposed on them by or under the mutuals legislation”
That imposes a legal duty on the FCA to have systems in place to police whether or not people (and societies) are complying with requirements imposed on them by or under the “mutuals legislation”. That expression includes the Industrial and Provident Societies Acts – see para 1 of Schedule 1 of the Draft Order and section 50(2) of the Financial Services Act 2012 (which was the old clause 47(2) when the Draft order was written).
One of the requirements imposed on every society “by or under” that legislation is that, while they are registered, they should be either a bona fide co-operative or a community benefit society.
So, if the Mutuals Order is enacted as drafted, there will be an explicit legal duty for the FCA to “maintain arrangements” to make sure that is the case. That requires systems to ensure that on registration and while registered societies comply with those requirements so that, if they don’t, their registration can be cancelled under the mutuals legislation.
Resources will have to be found by the FCA to operate that system and there will no longer be any ambiguity about their role. They are a registrar of co-operatives and bencoms and that involves more scrutiny than is needed to register a non-CIC company and keep it on the register.
So how will the FCA decide who meets those requirements? They already publish some guidance together with the application form for registration – see pages 8-9 here. They have already taken legal advice and consulted on the advice and its suggested guidance and work continues on that.
While the content of future Guidance will be subject to further work and more consultation, the Draft Order makes it clear beyond doubt that FCA Guidance about mutuals is Guidance under the amended Financial Services and Markets Act 2000 and not just information provided under the mutuals legislation -see paragraph 2(2)(f) of the Draft Order and section 139A of FSMA 2000 to substituted in the 2000 Act by section 24(1) of the Financial Services Act 2012.
This does not impose the full panoply of formal consultation applicable to Guidance given to regulated persons in the financial services sector. But it does give the Guidance a more formal status than the present brief note to an application form. Interestingly, it also places beyond doubt the power of the FCA to pay other persons or organisations to give the guidance on its behalf – see new section 139A(2) of the amended FSMA 2000.
This means that the role of the FCA as the UK body making sure the society structure is only used by bona fide co-operatives or bencoms will have a firmer legal footing from 1st April 2013. It is legally required carry out that function effectively.
Implementation of ss 1 and 2 of the 2010 Act
It is not clear when this will happen. It ought to happen by 1st April 2013. When it does, two important changes will be put in place.
One is that societies will formally, legally and for all purposes be known as co-operative or community benefit societies and not industrial and provident societies. Section 2 of the Act will achieve that.
The other is that any society which is registered will be registered formally and officially as EITHER a co-operative or a bencom.
Up to now, as long as a society met the criteria for one of these categories, it would be registered and there was room for some uncertainty or ambiguity about which category it was in at the time. Section 1 of the 2010 Act will amend industrial and provident society legislation with effect from the time of the amendment to make the basis of registration in one category or the other clear.
This, like the more formal legal status of Guidance on the criteria for these categories, makes clarity about the nature and role of the organisation vital.
Both of these developments bolster the role of the FCA as registrar and assist in protecting the “brand”. The registration of phoney co-operatives or bencoms should be harder. Continued compliance with the registration conditions to avoid cancellation of registration is just as important.
Finally, when will this happen? In March this year, the Law Commission plans to provide a “draft Co-operative and Public (sic) Benefit Societies Bill to HMT” – see page 11 of this business plan. Will the 2010 Bill’s implementation have to wait until parliament passes that new consolidating Bill?
Surely, it makes much more sense for sections 1 and 2 of the 2010 Act to be effective on 1st April 2013 to coincide with the implementation of the Financial Services Act 2012 and a Mutual Societies Order made under it?