Co-op Group Results: Project Verde in Doubt but Legal Services Does Well

March 21, 2013 by isn

This is not a legal post but does touch on an important issue for the whole UK co-op movement.

The massive concentration of the movement into the Co-operative Group has led to a renaissance in terms of retail market share and big improvements in the approach to ethical trading and promotion of the co-operative ownership model as different from PLC’s.

However, the latest results have been seriously affected by the need to account for the cost to the Co-op Bank of PPI misselling and bad debt. The bad debt was apparently inherited from Britannia, which became part of the bank only a few years ago and which has not yet been fully integrated.

Maybe this will spell the end of the project to buy all those Branches from Lloyds (Project Verde). The FT certainly seems to think so. Maybe a little time to consolidate would be healthy and useful for the Group and, particularly, the bank? With so many of UK consumer co-operation’s eggs in one basket, the security and safety of that basket becomes particularly important.  The insurance side of the business is being sold and travel has already gone via the Thomas Cook  joint venture. Will there be yet more concentration on retail? What about funerals and farming?

It will be interesting to see how the new CEO moves things forward. What really matters is to keep emphasising the co-op difference and the importance of members and of governance. That is the  co-op’s USP. It should be constantly used and promoted. A certain amount of movement in and out of businesses ensures that the service to members  is improved and developed.

The new Co-operative Legal Services business has broken even in its first year. That is impressive and maybe points the way forward…..

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FSA/FCA Mutuals Registration Team: Job Advert & 01.04.13 Changes

February 23, 2013 by isn

Jonathan Bromberger Manager – e-Money, Mutuals & PSD Teams at the FSA writes in a widely circulated email:

“I am writing to update you on several current (or upcoming) changes for the Mutuals Registration Team (“the team”) as these will influence the way we interact with your organisation and the mutual sector more generally.

The team is in the midst of delivering significant change which will cover:

  • Actively considering how to implement the Draft Mutual Societies Order and how our role as registrar changes as a consequence;
  •   Reviewing our processes, systems and ways of working;
  •   Up-skilling the team;
  •    How we engage with the co-operative and mutual sector more generally &
  •    Planning for succession.

There is also a restructuring in the wider FSA, as we approach 01 April 2013 when FSA legally separates into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).  However the registrar function will operate as part of the FCA and provide all the services required by societies whatever their society type.

In recognition of the importance FSA places on the successful delivery of these challenges the manager of the team will now have solo responsibility for the team, rather than managing a multiple portfolio.  The team will be located in the Approved Persons Passporting & Mutuals (“APPM”) department in Authorisations.  At 01 April, I will step down as the manager of the team and Beverley Walker will run the team on an interim basis.  Beverley will do so while the FSA seeks to recruit a permanent replacement and she will report to Graeme McLean who is the experienced Head of Department for APPM.  I will be in the FSA for a period after 01 April and will ensure an orderly handover of my mutual responsibilities.

I have attached a draft copy of the Mutuals manager job advert, if you are aware of any candidates this might suit or interest, please forward the advert to them (Job ad template Auth (6) (4) (4) (2) (3) (4) ).

If they wish to discuss the role, I am happy to do so with potential applicants and they can submit their applications via the following hyperlink:

http://www.careersatfsa.com/how-to-apply.aspx ………………………

Looking to the future I would also like to introduce Ian Adderley.  Ian joined my team this month as a Senior Associate and comes to us with a background of involvement in the co-operative movement. He previously worked for Co-operatives Yorkshire and the Humber– a regional co-operative council, representing, promoting and connecting co-operatives in that region. Whilst there he successfully organised and deliveredFutures North– an event bringing together co-operators across the north of the UK; and frequently spoke at events explaining and advocating the role of co-operatives and the co-operative economy. Ian has been active in the co-operative movement in various other ways including as a director of a national co-operative and previously as an elected member on committees of The Co-operative Group. Prior to working in the co-operative movement Ian read Law with Politics and was later called to the Bar at Lincoln’s Inn.  Most recently, Ian worked for the public services trade union, UNISON. There he worked as the national Ballots Manager, responsible for ensuring legal compliance in the running of industrial action ballots. His work also involved reviewing ballot processes, project managing the creation of new systems, writing guidance and delivering training.

I know Ian is keen to speak with people from across the co-operative and mutual sector. He will be in touch with you once he has completed his initial period in the team, however if you would like to contact him sooner, his contact details are:

Email: Ian.Adderley@fsa.gov.uk“

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Whatever Happened to Cobbetts…….

February 8, 2013 by isn

This has been a hectic week that has involved living in interesting times.

Some of you will  know that, when doing legal practice work, I have, for many years, operated through a freelance consultancy arrangement with Manchester Solicitors Cobbetts LLP .

On 31st January 2013 Cobbetts announced its intention to go into administration. It emerged that this was a “pre-pack” arrangement involving the purchase of the business out of administration by DWF LLP. That was confirmed by DWF on  7th February 2013. Pending further discussions about the future of my arrangement with DWF, I am currently working through them as the successor organisation to Cobbetts. The insolvency of law firms registered as LLP’s raises interesting issues.

It is sad to see the demise of a firm known particularly for its interest in co-operatives and mutuals and generally for its civilised approach to its stakeholders. We must hope that as many jobs as possible will be saved by this move and that the civilised behaviour that was always my own experience of the firm will continue under the new regime. All good wishes to everyone involved.

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit Creative Commons or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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Changes for Co-ops and Bencoms from April 1st

January 28, 2013 by isn

The Financial Services Act 2012 will have a big impact on UK credit unions. Most of their regulation moves to the Prudential Regulation Authority on 1st April 2013 – see my last post.

But co-ops and other industrial and provident societies will also see some changes on or after 1st April 2013:

Clearer Regulatory Role for the FCA and nature of Its Guidance

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?

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“Twin Peaks”, Regulatory Reform, and Credit Unions

January 15, 2013 by isn

On  19th December 2012  The Financial Services Act 2012 received the Royal Assent and became Law. Sections 50 to 57 deal with the transfer from the FSA to the new Financial Conduct Authority (FCA) of the registration function for industrial and provident societies. The FCA will come into existence on 1st April 2013 and since 2nd April 2012 the FSA has operated on the “Twin Peaks”  (remember that?) basis of separating the functions currently within the FSA which move to the FCA from those moving to the Prudential Regulation Authority (PRA) in preparation for the “legal cut off” when the two new regulators exist.

For societies other than credit unions, the move is simply to the FCA and remains a matter of registration rather than regulation as  financial services firms. The FCA will carry out the function that was in the hands of the Registrar of Friendly Societies from the Industrial and Provident Societies Act 1852 until it was transferred to the FSA under the Financial Services and Markets Act 2000 (FSMA) in 2001.

Credit Unions face significant change. They will be registered as industrial and provident societies by the FCA which will also supervise them as financial services organisations for consumer protection purposes. However, the PRA will deal with issues about the “safety and soundness” of the organisation. Under the FSMA system, one body (the FSA) and one Credit Union Supervision Team within that body dealt with registration, prudential supervision and consumer protection for credit unions.

A special credit union newsletter from the FSA outlined these plans in September 2012. During 2012 the Credit Union Supervision Team was split into two teams the Prudential Business Unit and the Conduct Business Unit as part of the FSA’s “internal twin peaks” preparation for the split between FCA and PRA in April 2013.  From April this year, most credit union regulation will be by the PRA, concerning capital, liquidity, loans arrears, large exposures, investments, borrowing, etc. The PRA will also be concerned with governance issues and the functioning and competence of boards in terms of prudential risks. This is reflected in CREDS which will continue to apply, presumably with some modifications. There is a hint that expectations of boards will be higher under the new system.

It will be interesting to see how well this threefold division of functions (registration, prudential supervision and consumer protection) for these modest sized financial services organisations works. Hopefully, there will be close co-ordination between the credit union teams within PRA and FCA as envisaged in their “high level” draft Memorandum of Understanding.

As I pointed out in a blog post last August when the Financial Services Bill was on its way through Parliament, for most societies the move of the registration function will largely be a formality according to the draft Mutual Societies Order provided to Parliament during its consideration of the Financial Services Bill. However, I notice two points in the draft order which will probably affect how the FCA will carry out its registration role.

In my next post I’ll look at those.

 

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Why Theory Matters – even to lawyers

December 17, 2012 by isn

A thoughtful analysis of the effect of the history of co-operative law in the UK on the way co-operatives see themselves and function has recently been published by Tara Mulqueen of Birkbeck College London:

Tara Mulqueen, “When a business isn’t a business: law and the political in the history of the United Kingdom’s co-operative movement” Onati Socio-Legal Series v 2 n. 2 (2012)Tara argues, essentially, that the corporate status of co-operatives in law has tended to move them away from the possibility of social transformation. Over the nineteenth and twentieth century, the emphasis moved to their role as businesses in a capitalist market place. Their potential to reshape the social interaction between people by operating on the basis of community and showing what could exist if the economy were organised differently was underemphsised. They were, she argues, depoliticised by being defined “primarily in commercial terms as corporate bodies” (p40).

The paper looks at the idea of community from a theoretical point of view and highlights the writers who argue the emptiness of its modern use in the phrases such as “the business community” or the “national community”. Co-operative history is based in the early nineteenth century sense of community as a distinct grouping depending on mutuality. Robert Owen’s Co-operative Communities and the idea of mutuality as a vision of “fully liberated humanity” contrasted with the competitive market system was critical and subversive. Retail and the divi were less subversive.

The corporate status of societies as singular legal entities, the paper argues, tended to marginalise the idea of co-operatives as a group of individuals who came together for mutual aid. The example of the changing position on the taxation of societies from the period of the Ritchie Committee in 1905 to the 1980’s is an interesting example explored in the paper. Are co-operatives to be seen as business structures or “as alternative forms of association which have the potential to open our thinking about the very organisation of the economy and to merge the economic, the political and the social”? that is the point posed in the conclusion of the paper and it goes to the core of one of the dilemmas faced by co-operatives.

Reading Tara’s paper brought home to me the importance of the history of the legal developments. That is especially true in areas such as tax, where the pressure from other businesses to deprive co-operatives of what were seen as “unfair” advantages was important – and maybe still is. Maybe this is what our continental legal colleagues mean when they refer to the double identity of the owning group as an association and operating it as a business. Common lawyers tend to ignore such theoretical issues but that has its dangers. The Law affects and influences the way we all see things. It contributes to the radicalisation or de-radicalisation of people. It forms society and ways of thinking as well as regulating activities. Our legal assumptions can blind us to other ways of seeing things and, especially in the Common Law tradition, make pragmatists and formalists of us.

We are, as Keynes said of theory in the economic context:

“ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air,are distilling their frenzy from some academic scribbler of a few years back.”

J. M Keynes, General Theory (1947 ed.) Ch 24 from Angela Partington (ed.) Oxford Dictionary of Quotations 4th Ed 1992 p395

So “academic scribbling” has its value after all. It can take us outside our usual way of thinking and remind us of the ideals that lie behind co-operatives and the possibility of social change that they demonstrate.

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit Creative Commons or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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