Strengthening the co-op movement

Mr Deputy Speaker, Sir, I thank the honourable members, Mr Desmond Choo, Mr Darryl David, Mr Louis Ng, Mr Seah Kian Peng, Mr Gan Thiam Poh, Mr Alex Yam and Mr Melvin Yong for their support and comments. Allow me to address the points they have raised in three broad categories:

(a) First, the regulatory powers of the Registrar;
(b) Second, issues relating to credit co-ops; and
(c) Third, facilitation and development of the co-op sector.

Enhanced regulatory powers

Mr Desmond Choo, Mr Darryl David, Mr Louis Ng, Mr Gan Thiam Poh, Mr Alex Yam and Mr Melvin Yong all supported strengthening the Registrar’s powers to protect the interests of the co-ops’ members. Mr Gan and Mr Yam even suggested further enhancement to the powers due to the concerns raised in their respective speeches.

Mr Seah Kian Peng highlighted some provisions in relation to the Registrar’s enhanced powers, and raised concerns over possible over-regulation. Before addressing these specific concerns, I would like to share our guiding principles.

(a) As a fundamental principle, my Ministry upholds the fact that co-ops are owned by members who have common bonds. We recognise that the members may have strong attachment to their own co-ops. They choose their own leaders to manage the affairs of the co-ops. Hence the Registrar’s duty is not to take over the responsibilities of the co-ops’ members and COMs. The Registrar’s duty is to regulate so as to protect members’ interests and the co-op movement.

(b) Secondly, we take a calibrated approach in managing risks of the co-op sector. In this Bill, the amendments largely focus on strengthening our regulatory oversight of credit co-ops as they take in deposits and grant loans to members. We need to ensure members’ deposits and interests are protected. Credit co-ops are already subject to governance and prudential requirements. The majority of them are complying with, or are making good progress in meeting these requirements. However, there are still gaps when it comes to dealing with situations of mismanagement, misconduct, distress and crisis. Hence, instead of imposing more stringent control requirements on all credit co-ops, we have decided to strengthen the Registrar’s ability to protect the members’ interests in such extreme situations. The Registrar’s powers in section 94 and 94A for example are meant to protect members’ interests and the co-op movement by maintaining stability, rectifying weaknesses and strengthening organisational competencies in severe circumstances or after an inquiry.

(c) Thirdly, the Registrar will intervene and act to protect only as a last resort. In other words, in situations of distress or mismanagement, as described earlier. In addition, under the new regulations, the Registrar will not wind up a co-op unless the co-op is insolvent, wilfully fails to meet the minimum prescribed requirements, or if its operations run contrary to national security or the members’ interests.

(d) Last, to ensure check and balance, due process and an appeal channel are provided for in the Bill.

Modifying terms and conditions of registration

Now let me go into the specific concerns raised by the MPs on the enhancement of the Registrar’s powers. Mr Seah raised a specific concern that the Registrar may modify the terms and conditions of a co-op’s registration, and subsequently wind up the co-op should it fail to meet them. We propose this amendment to cater for possible situations such as a co-op changing its social mission or business activities, which may render the terms and conditions of its registration no longer be relevant. Hence there is the need to make the modification. Any decision to wind up a co-op on account of failure to meet a registration condition would only be in an extreme case where significant risks to its members or society have been identified, and also after due process.

Mr Louis Ng asked whether in the spirit of increasing transparency, the Registry could disclose the modified terms and conditions to the members and even the public. We agree with Mr Ng that for greater transparency, a co-op should disclose pertinent information to its members. Hence, we will require the co-op to disclose information on any new or modified terms and conditions to their members. However, given that co-ops are membership-based organisations, there is no necessity to disclose such information to the general public.

Appointment of individuals by the Registrar

Two members have also highlighted the amendment in which the Registrar may appoint up to two individuals to serve in the COM of a co-op.

As COMs of credit co-ops should possess requisite competencies to oversee the co-ops effectively, Mr Gan suggested that a co-op or the Registrar should be allowed to appoint more than two new members. As co-ops are essentially membership based organisations, we recognise that the leadership must have the support of the members through open and fair elections of officers during the general meetings. However, we recognise there is a need for additional injection of competencies and diversity. Hence we provide the flexibility for a co-op and the Registrar to appoint up to two new members, with no veto power and on a temporary basis, to serve until the next AGM.

Mr Seah is correct in his assumption that this would only be done in exceptional cases. If the COM lacks certain capabilities, the co-op should find competent persons to serve on the COM. In fact, we allow the co-op to appoint up to two members to serve on the COM. If they are unable to find such persons on their own, the Registrar may appoint up to two individuals to serve in the COM to ensure compliance with the requirements or proper management of the co-op.

Mr Darryl David asked what guidelines or criteria would be applied before the Registrar acts to remove a committee of management, and appoint one or more individuals to take over the management and administration of a co-op. Such a protective measure would likely only be undertaken after an inquiry has been conducted, or there is evidence demonstrating that the actions of the COM has put the co-op in a vulnerable or risky state, or that there has been mismanagement. We hope that should such a need arise, there are respected individuals from within the sector who would step up to take on such a role.

We are first and foremost looking for individuals with integrity and the necessary competencies and knowledge of the sector. We would also seek inputs from our stakeholders including the industry body, the Singapore National Co-operative Federation, or “SNCF” in short, and the Central Co-operative Fund, or “CCF”, Committee. The involvement of the Registrar in this regard aims to stabilise the co-op and maintain members’ confidence. We believe it would provide assurance to members especially in times of distress or crisis.

Mr Louis Ng raised a concern on whether extended powers are necessary. I have earlier mentioned that we are concerned about situations of mismanagement, misconduct, distress and crisis. Hence we have decided to strengthen the Registrar’s ability to protect the members’ interests in such circumstances. One of which is to ensure that the Registrar can properly investigate into matters which led to or caused these situations. The Registrar would exercise the power of search and seize if there is reason to suspect that an offence under the Act has been committed. In addition, the Registrar must have reasonable cause to believe that the document or item is necessary for the purpose of obtaining evidence of the offence. This power is especially critical to enable the Registrar to uncover the truth and act swiftly, particularly for credit co-ops where a crisis situation could cause a run, and adversely affect the sector.

Credit co-ops

I will now move on to the next set of comments and queries on credit co-ops.

Mr Melvin Yong asked about the relevance of credit co-ops in this day and age. My Ministry believes that there is still a place for credit co-ops in Singapore. Notwithstanding that the membership base of credit co-ops is fairly small and has remained relatively stable in the last few years, credit co-ops still play an important social role in serving their members. Especially so in promoting savings and giving loans at affordable interest rates to members in need. As co-ops are less profit driven compared to financial institutions, they are more willing to go the extra mile for their members by extending loans to lower income earners and rescheduling members’ loans to help them tide over difficult periods.

Given the self-help element and social objectives, co-ops are regulated by the Registry of Co-operative Societies, under MCCY. Many credit co-ops’ members are Singaporeans who can ill-afford to lose their savings in the credit co-ops. Hence, it is necessary to ensure that their deposits are prudently managed.

Competency and training

Sir, I am reassured by the MPs’ support for a framework to uplift the governance and competency level of the credit co-ops’ COMs and key employees.

As leaders of credit co-ops, the COM members and key employees have a responsibility to act prudently and be accountable to the members. In order to properly discharge their duties, COM members and key employees have to be competent and undergo relevant training.

In expressing support for raising the governance of credit co-ops to better protect members’ deposits, Mr Darryl David, Mr Melvin Yong and Mr Desmond Choo have asked for more information on the training and qualification requirements that will be introduced for the COM members and key employees of credit co-ops, and how these will be enforced. Additionally, Mr Choo asked about the assistance provided to the co-ops in view of the possible additional administrative costs.

The Registry has worked with SNCF to develop a customised training programme for all COM members of credit co-ops. The training programme covers topics such as governance, internal controls, regulatory requirements and best practices. This training is heavily subsidised by the CCF.

The minimum competency standards we will introduce through subsidiary legislation, which comprise the number of years of relevant work experience as well as minimum qualifications, will be applicable to selected key officers such as a member of the Audit Committee, the Chief Executive Officer and the Chief Financial Officer. As credit co-ops vary in size, we have applied a tiered approach in implementing the requirements. While we raise the bar, we also ensure that support is provided to the sector to assist them in meeting these new standards. For example, subsidy schemes under CCF have been revised to provide more financial support to the credit co-ops to undergo training programmes. A transition period of three years is also granted to existing officers to meet the new requirements.

Mr Alex Yam asked whether there are other action plans besides instituting qualifications and training requirements for the key officers. We have in fact, updated the Code of Governance in 2016 and provided a self-evaluation checklist which credit co-ops will be required to submit to the Registry. In 2017, the Registry and SNCF further developed specific guidelines on internal controls, loans management and investment management which will be rolled out to the credit co-ops this year to strengthen their capabilities and processes.

Hence we will work hand-in-hand with SNCF and all the credit co-ops’ key officers to support them on this journey of upskilling.

Conflict of interest

Mr Yam suggested that persons related to the COM be barred from holding management positions in their co-ops. We would like to share that while some COM members may be involved in the operations of their co-op, the Act requires the majority of a credit co-op’s COM to be independent. A credit co-op’s audit committee shall also comprise at least 3 members who shall be independent of the co-op. Additionally, all COM members must disclose any conflict of interest.

In the Code of Governance, it is stated that a credit co-op should have policies to manage conflict of interest, for example a COM member with conflict of interest should be excluded from the relevant discussions. The Code also states that the roles of the COM and key staff officers should be clearly defined.  In addition, the Chairman and the CEO should be separate persons, to ensure an appropriate balance of power, increased accountability and greater capacity of the COM for independent decision making.

On Mr Yam’s suggestion for no duplication of COM in co-ops, we are conscious that such a requirement would have trade-offs and implications for the sector. Notwithstanding, we will consider the matter and discuss with our stakeholders in our next review of the Code.

Deposit insurance

Mr Gan suggested that deposits in credit co-ops should be covered by deposit insurance. The Deposit Insurance Scheme or “DIS” is unable to cover credit co-ops as they are not part of the banking system. We would like to assure Mr Gan that while there is no DIS for the credit co-ops, we have put in place various prudential and governance requirements to instil financial prudence and manage the risks of credit co-ops.

Special audit

Mr Yam asked if the records of co-ops will be audited. All credit co-ops’ financial statements will be externally audited. In addition, they will undergo special audits conducted by the Registry. Mr Desmond Choo has asked how much time credit co-ops will be given to ensure that processes are in place. The special audits are primarily governance and internal controls audits, aimed at helping credit co-ops identify gaps and lapses in their operations and existing processes. Co-ops will be provided recommendations on how to address the findings and strengthen their operations. The co-op’s COM will thereafter propose their management action plan and proposed timeline in the audit report, which the Registry will monitor.

Credit co-ops’ bad debts

Mr Choo also asked about the bad debts of credit co-ops. For loans granted by credit co-ops, the bad loans written off for financial year 2016 was about $2.3 million, which is about 1% of the total outstanding loans. In writing off the loans, credit co-ops follow the Financial Reporting Standards and their own internal policies.

Ranking 

Mr Melvin Yong and Mr Alex Yam asked about introducing ranking or rating systems on the credit co-ops. As membership-based entities, there is no public ranking or rating of the credit co-ops. Members should be aware of their co-ops’ information through the co-ops’ websites, annual reports and audited financial statements which are tabled at the annual general meetings. Members can raise questions regarding co-ops’ matters during these meetings. If there are adverse findings on any co-ops, appropriate information will be shared with members by the Registrar.

Penalties

Mr Louis Ng suggested including punitive measures should a credit co-op not comply with the requirement to provide information under section 32C. We would like clarify that this would be captured under Section 100 of the Co-operative Societies Act whereby it is an offence if a co-op neglects or refuses to do any act as required.

Facilitation and development of the co-op sector 

Lastly, I greatly appreciate my colleagues’ recognition of our efforts to facilitate the operations of co-ops and support us on our amendments to further develop the co-op movement.

We agree with Mr Melvin Yong that there is potential for growth for co-ops in the social services, and we hope to see them playing a bigger role in the community. Through this Bill, we have introduced some key changes to further develop the sector. These include, for example, reducing the minimum number of individuals to form a co-op, as well as reducing the age limit for COM members, which will help bring in more youth leaders into the movement. We will continue to review our regulatory and administrative requirements to ensure they are facilitative for the setting up and operations of co-operatives.

We will also continue to work closely with our stakeholders, SNCF and the CCF Committee, to further develop the sector. SNCF as the industry body of co-ops, is funded by the CCF, and has various programmes to build awareness and promote the co-op movement. These include roadshows, educational talks in schools, co-operative-related competitions, scholarships and other outreach programmes. The CCF also provides grants to assist eligible new co-ops with their start-up costs.

For existing co-ops, there are CCF grants and schemes to develop their capacities and capabilities to help them develop and grow.  They include grants for training of co-operative officers, purchase of IT systems, upgrading of office premises, audit fees, marketing and accounting services.

I would now like to address some specific queries regarding the amendments to facilitate and develop the co-op sector.

On the lowering of the minimum age for a COM member from 21 to 18, I would like to clarify in response to Mr Melvin Yong, that this is primarily to facilitate the participation of tertiary students in university co-ops for example. As an effort to rejuvenate the co-op movement, the industry body has been ramping up its youth outreach to raise awareness of the co-op model of enterprise. Even though the younger members may lack business and management experience, I believe they can contribute in other ways at the board level by developing strategies on the use of social media to reach out to new markets for example, extending new services to members or to understudy experienced and competent leaders as part of succession planning.

On the replacement of the term “manager” with “chief executive officer”, we would like to clarify that there has been no change in policy. Mr Seah can be assured that the CEO may be assisted by his staff or agents as appropriate, such as the CFO. But the CEO will retain the overall responsibility for the proper running of the co-op.

Mr Seah also proposed for the voting of election or removal of officers by a show of hands, instead of secret ballot. The requirement of the secret ballot is in fact to protect the interest of individual members. A co-op is different from companies as the members know each other from common bond or interest. Being in the same community or organisation, some may fear possible negative repercussions should their vote be known to other members. We understand that a secret ballot may not be necessary for co-ops with mainly institutional members for example, and hence have been amenable to granting exemptions upon request.

Mr Seah also noted that under co-operative legislation, co-ops may only pay dividends from the current year’s surplus. He has asked for this Bill to allow co-ops to draw down on past reserves. Given its social mission, a co-op should be prudent especially when it has made a loss. It should not incur additional expenditure by declaring dividends and eating into its reserves. We acknowledge Mr Seah’s argument that notwithstanding a co-op has made a loss in a financial year, it could in fact have positive or healthy accumulated reserves. The definition of what constitutes as healthy reserves however, may be subjective. Notwithstanding, we are prepared to relook this matter, as part of the next review of the legislation.

Mr Desmond Choo inquired on whistleblowing policies for co-ops. In the Code of Governance, the COMs are advised to implement a whistle-blowing policy for staff, and any other person, to raise concerns about possible improprieties in confidence.

Conclusion

Mr Deputy Speaker, Sir, my Ministry takes a balanced approach in our regulation of the co-op sector, which is reflected in the Bill today. While we strengthen our regulatory oversight of credit co-ops, we are mindful not to burden the sector with additional compliance costs where possible. We put forth the competency framework for the key credit co-ops’ officers and enhanced the Registrar’s abilities to act and protect the members’ interests in severe circumstances. This is especially pertinent in the case of credit co-ops, where panic among members could cause a run on deposits for example.

At the same time, co-ops are still relevant and they are an important form of social enterprise, which contribute to our nation’s social and economic fabric. Hence, our legislation makes it easier to set up and operate co-ops. We hope to see more and better co-ops in various sectors such as social service, silver and youth thus making a positive difference to the lives of fellow Singaporeans.

Mr Deputy Speaker, Sir, I beg to move.