Letter from Ed Mayo, Secretary General,
Co-operativesUK, to the Chairman of
the Committee, dated 4 February 2010
Following the recent Treasury Select Committee
visit to Northern Ireland to hear oral evidence in relation to
the Presbyterian Mutual Society, I feel it would be helpful for
Co-operativesUK to contact you in this regard.
Co-operativesUK is the trade association for
co-operatives, but we are a voluntary association and Presbyterian
Mutual Society unusually was not a member. Our experience is that
Presbyterian Mutual is in many ways an exceptional case and it
does raise questions, but less about a gap in current regulation
and more about the enforcement of existing rules that PM flouted
and the encouragement of good practice, which Co-operativesUK
exists to take forward.
Co-operatives are businesses and as such will
fail from time to time. Our sense is that the failure rate is
lower than for business more widely, but of course the wider ownership
means that any such loss is regrettable and keenly felt. Whilst
we should not expect a zero-failure regime for regulation, Presbyterian
Mutual was acting outside of the existing rules and we believe
that the best way to protect and promote the consumer interest
is to insist on better enforcement and to encourage better standards
rather than fall back on new regulation which could discourage
new community and co-operative enterprises. In particular, we
believe that the registration function has been neglected in NI
and the UK more widely and we would urge the Committee to press
the current regulators to act on this.
In relation to this case the role of the registrars
in both Northern Ireland and Great Britain is to register societies.
Both are at pains to point out that they do not regulate societies.
This however is not quite that clear cut as there are some functions
undertaken by the registrar which could be regarded as regulation.
Representing co-operative enterprise throughout
the United Kingdom of Great Britain and Northern Ireland, the
Channel Islands and the Isle of Man. The legislation for societies
as compared to companies gives little direction as to how as a
society should operate, placing a strong reliance on each individual
society's rulebook. The registrar has a extremely important role
regarding rulebooks in that a society cannot be registered unless
the registrar is satisfied the rulebook meets the requirements
of the legislation; likewise any amendments to that rulebook have
to be checked and signed off by the registrar before they can
be acted upon.
The first three objects in the rulebook of the
Presbyterian Mutual Society are as follows:
(a) to promote thrift amongst its members by
the accumulation of their savings;
(b) to use and the manage such savings for the
mutual benefit of members; and
(c) to create a source of credit for the benefit
of its members at a fair and reasonable rate of interest.
Section 1.3 of the Industrial and Provident
Societies Act (Northern Ireland) 1969 which refers to the type
of societies that can be registered states:
In this section, the expression "co-operative
society" does not include a society which carries on, or
intends to carry on, business with the object of making profits
mainly for the payment of interest, dividends or bonuses on money
invested or deposited with, or lent to, the society or any other
person.
As the registrar should have been mindful of
the above when registering the society one has to question how
much consideration was given to the society's ability to be registered
under the Act in the first place.
It also seems evident from the oral evidence
of the members of the society there was a great deal of trust
placed in the society and its officers by being part of the Presbyterian
Church which led to a relatively unique perspective from members
investing.
The co-operative movement through membership
of Co-operativesUK has a long and reliable history of self regulation
especially in regard to governance and financial monitoring.
In the 1980's our Co-operative Performance Committee
was established. Its role is to monitor and influence accounting
legislation on behalf of our members and to promote and encourage
best practice. In 1996 this Committee produced a recommendation
that all co-operatives of a certain size in membership of Co-operativesUK
should publish half year reports in the form of an interim financial
report which is then proactively monitored by Co-operativesUK.
In 1995 the first edition of its code of best practice on corporate
governance was published, long before it became an issue in the
wider corporate world. Compliance with this code by our members
is monitored and reported on annually.
A code of best practice on the use and advertising
of withdrawable share capital was first developed with HM Treasury
in 2000 and subsequently updated in conjunction with the FSA in
2005.
We have been working on the modernisation of
the legislation for a number of years; this work is resulting
in ongoing legal reform covering a range of areas including the
powers available to the registrar in relation to societies.
We are also mindful that the environment in
which societies operate has previously been neglected. We have
been proactive in gaining commitment from the FSA to put the register
of societies on line so that it is easily searchable and accessible
to the general public.
We would urge you as a committee to consider
the considerable amount of self regulation undertaken by the sector,
and its proactive engagement in legislation reform. We would further
encourage you to engage with ourselves and the co-operative movement;
whilst considering your findings in particular to ensure the current
commitment to modernisation is continued.
—the "Financial Services and Markets Act
2000 (Regulated Activities) Order 2001": and
—the "Financial Services and Markets Act
2000 (Carrying on Regulated Activities By Way of Business) Order
2001".
This is not an exhaustive list.
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