Closing Speech of the Co-Operative Societies (Amendment) Bill

CLOSING SPEECH CO-OPERATIVE SOCIETIES (AMENDMENT) BILL 2024

Mr Speaker, Sir, before I answer Members' questions, I would like to take the opportunity to thank, recognise and also acknowledge the contributions that you, Mr Speaker, Sir, have made to the co-operative sector over many decades, including as Chair of the SNCF. The Members have very robustly and thoughtfully acknowledged the contributions of the co-op sector to Singapore's social development. So, thank you, Mr Speaker, Sir, for your years of developing the co-op sector.

Turning now to the specificities of the Bill, I would also like to thank Members, Mr Mark Lee, Mr Neil Parekh, Mr Don Wee, Mr Yip Hon Weng, Mr Desmond Choo and Mr Raj Joshua Thomas for speaking on the Bill. There are also many other Members who have come up to me and also expressed their views about the Bill, including Mr Liang Eng Hwa for his parliamentary question about the role of co-ops in strengthening this social compact that I mentioned earlier on.

First, let me address the need for the safeguards for use of reserves. Mr Mark Lee commented that allowing co-ops to pay dividends from their reserves contrasts with the corporate practice of paying out dividends only from retained profits. He made a comparison. Mr Mark Lee also noted that this may be of concern for credit co-ops particularly given that the drawdown of reserves would reduce their institutional capital and therefore their CAR or Capital Adequacy Ratio. Mr Mark Lee also asked about the safeguards to help credit co-ops make prudent decisions as they pay dividends from their reserves.

Currently, a co-op may only pay dividends from the preceding year's surplus. We propose to allow them to tap their reserves to pay dividends and honoraria, subject to the Registrar's approval. This will allow co-ops to tap only on their general, unallocated reserves, such as the "Accumulated Surplus" and reserves allocated specifically to the payment of dividends or honoraria as the case may be. This will be made clear to co-ops through issued guidelines.

I also agree with Mr Mark Lee that credit co-ops must maintain adequate capital buffers and ensure adequate safeguards to protect members' interests. There are two layers of safeguards over using reserves to pay dividends or honoraria.

First, co-ops must seek the Registrar's approval. The Registrar will also consider factors, like reasonableness of proposed rates compared to previous years, past compliance track records of the co-op's, strength of governance and particularly for credit co-ops, if these credit co-ops have met prudential requirements. Credit co-ops must also demonstrate that they can meet the prevailing minimum CAR after their proposed dividend or honoraria payment. Second, of course, co-ops must obtain members' approval.

Moving on to the second category of questions on the process for Registrar's approval, Mr Neil Parekh, Mr Don Wee and Mr Yip Hon Weng asked questions regarding the obtaining of Registrar's approval for payment from reserves and the impact that this approval may have. The Registrar will issue guidelines to co-ops on the information and documents that co-ops need to submit or provide to the Registrar. These will set clear expectations for co-ops on the pre-requisites for the application and allow the Registry to focus on co-ops which satisfy the pre-requisites.

Upon receiving Registrar's approval, the co-op must seek members' approval with a specific resolution at their Annual General Meeting or AGM. This will ensure adequate disclosure on the proposed use of reserves. Members will also be able to refer to the co-op's audited financial statements, which will also be tabled for members' approval. This enables members to understand the financial impact of such payments on the reserves, if any, before making an informed decision. Co-ops must hold their AGMs within six months from the financial year-end, so there is enough time for them to obtain Registrar's approval before conducting their AGM.

Mr Yip Hon Weng also proposed a review and monitoring mechanism to ensure that this and other legislative changes are meeting their intended objectives. We will monitor the implementation of these new proposed changes and will refine the administrative processes over time, if and where necessary, and this is to facilitate co-ops' operations and to ensure that there are adequate safeguards in place.

The third category refers to Members' questions on the review of the dividend cap. Under the current legislative framework, a co-op must not pay a dividend on paid-up share capital or subscription capital exceeding 10% per annum. Mr Choo asked if MCCY can allow better governed co-ops to distribute more to their members. Mr Yip asked if we can apply a differentiated approach to allow for more flexibility for co-ops with better fiduciary governance.

I thought it was important for me to make two points to these suggestions. First, as Members already know, co-ops are uniquely different from other corporates due to their membership-based structure and social mission. Co-ops' reserves are built up slowly over the years through collective efforts by past and present co-op officers and members. These reserves are therefore very critical for them to meet any losses or operational needs due to unforeseen events. Co-ops must therefore be very prudent when using their reserves.

The current 10% dividend seeks to help co-ops to prioritise their long-term financial health and sustainability, while fulfilling their social mission and objectives and also their members' specific needs. While some may compare dividend payments to that of other corporates, the dividend yield for most larger public listed companies typically do not exceed 10%. The dividend cap for co-ops also reflect a balance between providing decent returns to their members and retaining funds for co-ops' operations and growth. As such, we feel that the current cap would generally be adequate for co-ops.

Second, we recognise the broad diversity of our co-op sector. Some are large-scale and professionally run, while others are smaller and mainly volunteer-run. Naturally, governance capabilities and the size of reserves across this whole spectrum vary. MCCY will study this further to assess how to meet the needs of different types of co-ops across the spectrum, while ensuring adequate safeguards to protect members' interests as well as co-ops' long-term financial health and sustainability.

The fourth category of questions relate to amendments to facilitate co-ops' operations. I will now address queries on the safeguards for two amendments aimed at facilitating co-ops' operations. Mr Don Wee and Mr Yip Hon Weng asked how the proposed reduction of signatories required for an application to register by-law amendments would impact accountability and also to prevent abuse.

Sir, the legislation will continue to require amendments to by-laws to first be approved by members at a general meeting or a referendum. In the case of a general meeting, the resolution to make amendments must be passed by at least three-quarters of the members present and voting. The co-op must thereafter submit an extract of the resolution of the general meeting to the Registrar together with the application form. This will help ensure that the co-op had followed due process in calling for the general meeting and that members have duly approved the amendments. Most co-ops would also have sought Registry's comments on the proposed by-law amendments prior to tabling them at the general meeting. We will continue with this general practice.

Mr Don Wee also touched on removing the requirement for Registrar's approval for the issuance of bonds and debentures by co-ops. He asked what safeguards will be in place to prevent misuse or mismanagement of funds raised through such instruments.

Sir, I would like to assure Mr Don Wee that MCCY is mindful that co-ops need more flexibility in their operations. Since co-ops are already subjected to relevant laws on issuance of bonds and debentures, there is no need for an additional layer of Registrar's approval. When making such issuances, the co-op's management must explain to potential investors the structure of the bonds and debentures, and how these proceeds will be used. As a membership-based organisation, the co-op's COM is ultimately accountable to its members for the management of the co-op's funds. Should any co-op be found to have mismanaged its funds, the Registrar will take action under the Act.

Fifth, Members asked questions about support for and development of the sector. To this end, I thank Members for recognising the important role that co-ops play in our society as well as the support that both MCCY and SNCF provides in the development of our co-op sector.

Mr Desmond Choo suggested studying how to help co-ops modernise and use productivity grants that are available for small and medium enterprises (SMEs). As I mentioned, co-ops can access grants from the CCF. MCCY also works closely with SNCF to ensure the grants remain relevant. Over the last five years, CCF disbursed about $2.7 million in grants to co-ops. In addition to grants to assist eligible new co-ops with start-up costs, co-ops can also apply for development grants, training grants, basic support grants and special grants, that address emerging risks and needs.

MCCY has also supported conferences and events organised by SNCF to raise awareness of topics such as data protection, sustainability and cybersecurity.

Mr Mark Lee suggested exploring the feasibility of a shared secretariat service to assist co-ops with limited resources. He also suggested a shared service that could address concerns such as cybersecurity threats and the adoption of new technologies. Mr Yip Hon Weng also asked if Government could help smaller co-ops digitalise.

Members will know that it is challenging to standardise the scope of works for shared services given the diverse needs of co-ops across the co-op sector and spectrum. Our general approach is to provide the CCF Development Grant, which gives co-ops flexibility to engage suitable service providers to meet their own unique operational needs and to tailor these programmes to their specific requirements. Nevertheless, I think it is a very good suggestion and so, we are open to exploring with SNCF and the sector on centralised services where it is appropriate and where co-ops find it useful.

We also work with SNCF to raise awareness of emerging issues such as cybersecurity, as well as offer a CCF Cybersecurity Grant which co-funds a recommended subscription-based solution to manage cybersecurity risks that Mr Lee and Mr Yip mentioned earlier.

Mr Lee and Mr Yip highlighted co-ops' struggle to attract and retain talent. Mr Yip asked how Government could help in this area and Mr Lee suggested a secondment programme between co-ops and public and private sector organisations. We will explore Mr Lee's idea further with SNCF and the co-ops.

Mr Lee also mentioned ongoing initiatives to build the capabilities of co-ops' COM and staff. These include customised courses unique for the sector. MCCY for example is working with SNCF to introduce a new customised Audit Committee course for credit co-ops in May 2024. This course aims to enhance Audit Committee members' understanding of their roles and responsibilities, and to sharpen their knowledge of relevant topics like risk management, internal controls, audit and financial reporting.

SNCF has also established the Emerging Leaders Programme in 2022, which aims to groom 100 leaders in five years. SNCF also organises conferences, networking events and sharing sessions to expose co-op officers to best practices and practical solutions adopted by their peers. On Members' rights, which Mr Raj Joshua Thomas raised relating to efforts to educate co-op members on their rights under the Act, I would like to respond that as member-owned organisations, co-ops are governed by their own by-laws as well as requirements under the Act. But we aim to foster an environment of both accountability and transparency, by ensuring co-ops make sufficient disclosures to members.

One of our proposed amendments is a case in point. While co-ops must already obtain members' approval for payment of allowance, honoraria and other benefits to the COM, we proposed amending the Act to make this an explicit function of the AGM. This will help ensure that members' approval is obtained for such benefits. In 2019, the Registrar also notified co-ops about the minimum information they need to disclose in an annual report to inform members about activities of the co-op and to make informed decisions. These include, for example, adequate disclosure of its activities and financial performance. Co-ops are also encouraged to disclose more information as they deem fit.

Mr Desmond Choo also asked about the sustainability grant. I seek his indulgence because we just set up the grant on 1 January 2024. We will provide more statistics as the take-up rate becomes steady.

Next, I will move on to Mr Yip's questions about whether the Government would allow credit co-ops to advertise their loans to create greater awareness of their services. Credit co-ops are generally set up to serve their members who share a pre-existing common bond, such as the same industry, organisation or the same community. Credit risks are mitigated as many credit co-ops have arrangements with their members' employers for salary deductions for loan repayments to co-ops. As a membership-based organisation, credit co-ops are not regulated to the same degree as other financial institutions. Hence, they are not open to the general public and should not advertise in mass media.

Nonetheless, credit co-ops are not precluded from advertising directly to their members. In the course of the Registry's engagement with the co-ops and public consultation for the current Bill, we received feedback to review the advertising restriction for credit co-ops. So, we are studying this matter further.

Mr Speaker, Sir, I would like to conclude by addressing Mr Liang's related Parliamentary Question on co-ops. Mr Liang asked if Singapore needs new co-ops to meet the evolving socio-economic landscape, and if the roles and social missions of co-ops can be strengthened under Forward Singapore.

In view of our refreshed social compact and renewed sense of social solidarity, co-ops indeed offer an additional platform for Singaporeans to come together and address societal evolving needs. To remain relevant and increase co-ops' impact, they must continue to build their capabilities and competencies – the point that Members have been raising in this debate. This would strengthen confidence in and enhance recruitment into the sector. Co-op leaders themselves should also ensure they can lead their co-ops in a rapidly evolving environment. They should adopt a growth mindset, participate in professional development and continuous learning courses, and put in place succession planning to ensure their co-ops' longevity and continued relevance. MCCY will continue to work with our partners, the CCF Committee and SNCF, to support co-ops and co-operators along their journey.

Mr Speaker, Sir, I beg to move.