person holding brown leather wallet and banknotes

The passage of the Co-operative and Community Benefit Societies Act 2014 was a vital step towards the UK levelling the playing field and supporting growth in the co-operative sector.

But despite this important piece of legislation, when it comes to the growth of co-operatives and mutual banks there are still several major barriers to accessing necessary capital that continue to hinder this endeavour.

One such barrier prevents co-operative banks from issuing any form of repayable equity instruments, as these would be counted as withdrawable shares – putting them at an unfair disadvantage to other banks and restricting flexibility around their capital.

A section of legislation currently providing this restriction exists in the Co-operative and Community Benefit Societies Act, and can be traced back to the Industrial and Provident Societies Act 1876. This law preventing withdrawable shares was probably imposed to protect depositors from the holders of bank capital withdrawing funds first in any crisis, to the detriment of depositors.  There’s no dispute that depositors should of course have first claim on funds ahead of the providers of the bank’s capital.

But fast forward over a century and we now have the Capital Requirements Regulation, and the PRA, who do the job of regulating bank capital to ensure that depositors are protected.

These provisions within the Co-operative and Community Benefit Societies Act are no longer necessary, but leaving them there is not a harmless industrial history curiosity – it discriminates against co-operative banks and ultimately harms competition and choice in the banking sector.

That’s why I’ve put down an amendment to the Government’s Financial Services Bill, which will look to remove the offending section of the Co-operative and Community Benefit Societies Act, and level the playing field for co-operative and mutual banking initiatives.

Removing unnecessary and damaging restrictions that hold back the co-operative banking sector is an important step in allowing the sector to flourish. As we look to recover from the devastating impacts of the ongoing pandemic, it’s co-operative values found in these institutions that will be critical – and I’ll be encouraging the Chancellor to recognise their value to the communities they serve and to support my amendment that gives them an even greater chance of doing so.