Financial Services Bill

Written evidence submitted by Co-operatives UK (FSB12)

Financial Services Bill: In support of amendment NC37

1 Introduction

1.1 This representation is made by Co-operatives UK, the politically independent national association of co-operative businesses.

1.2 We would like to confirm to the Financial Services Bill Committee that we support Stella Creasy MP’s amendment NC37 .

1.3 NC37 aims to make it easier to establish a mutual bank in the UK. Government should accept this amendment, because local mutual banks can help achieve its policies of ‘levelling up’ and building back greener, stronger and fairer from COVID-19.

2 Rationale for supporting NC37

2.1 Amendment NC37 removes restrictions in the Co-operative and Community Benefit Societies Act that currently prevent societies with withdrawable share capital from being banks.

2.2 Given that mutual banks raising capital already face additional challenges, it’s vital that potentially fruitful options are not unnecessarily closed off to them. Unfortunately, the outdated restrictions the Co-operative and Community Benefit Societies Act do just this.

2.3 When these restrictions in the Co-operative and Community Benefit Societies Act were imposed in 1876, there were good reasons for doing so. In lieu of other safeguards, depositors’ money is put at greater risk if a bank’s shareholders can withdraw their capital at will.

2.4 Things have moved on since Disraeli's day:

· we have separate and very strong regulation of banks’ capital adequacy (Capital Requirements Regulations) enforced by the PRA

· via the EU, we have clear and specific regulation setting out how co-operative withdrawable share capital can be safely used to help capitalize banks

· today it is firmly established that societies retain the absolute right to suspend share withdrawals, giving this capital the essential features of equity under international and UK accounting standards

2.5 If mutual banks were able to add withdrawable share capital to their mix, this would enable them to diversify their offer to investors and broaden the range of investors that can be marketed too. It would open up significant new opportunities to raise equity they need to get a banking license.

December 2020


Prepared 3rd December 2020